Crypto Insider Trading Case: Former Coinbase Manager Arrested in US Crypto Insider Trading Case

US authorities have arrested and charged a former Coinbase Global Inc. a product manager with an alleged insider leak to help his brother and friend buy tokens just before they were listed on the exchange. crypto exchange.

Thursday’s move to detain Ishan Wahi, who helped oversee the listing Coinbase the investment products unit follows a wide-ranging investigation involving prosecutors for the Southern District of New York and Security and Exchange Commission (SEC). The SEC also sued Wahi for allegedly violating the agency’s anti-fraud rules.

The exchange operator was not the focus of the investigation and he will not be charged. In a press release, U.S. Attorney Damian Williams said Coinbase cooperated with the investigation.

“Today’s allegations are another reminder that Web3 is not a law-free zone,” he said. “Our message with these allegations is clear: fraud is fraud, whether it happens on the blockchain or on Wall Street.”

Coinbase allows Americans to trade over 150 tokens, many of which have been added in recent months. Due to the platform’s status as the largest cryptocurrency exchange in the US, coins can often generate a surge of interest and price appreciation immediately after being listed.

According to the allegations filed on Thursday, Wahi alerted his brother Nikhil Wahi and friend Samir Ramini when the exchange was about to list the tokens. Nikhil Wahi and Ramini allegedly used this information to trade dozens of tokens from at least June 2021 to April 2022 for over $1 million in profits, the government said.

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Coinbase did not immediately respond to a request for comment. A spokesman for the Manhattan prosecutor’s office confirmed the arrests. The SEC declined to comment.

Andrew St. Laurent, Ishan Wahi’s lawyer, declined to comment. Nikhil Wahi’s lawyer did not immediately respond to a request for comment. Ramini could not be contacted.

accusation

According to the indictment, after Coinbase arranged for a May 16 interview with Wahi in Seattle as part of their internal investigation, he bought a one-way ticket on a flight to New Delhi that was scheduled to leave in 11 hours.

About 35 minutes before the interview was scheduled to begin, Wahi sent an email to Coinbase’s director of security saying he “had to fly home” but that the meeting could be rescheduled, according to the indictment. During this period, Wahi called and texted his brother and Ramani, sending them images of the messages he received from Coinbase’s director of internal security.

Law enforcement agents showed up at the airport before Wahi could board his flight on May 16. Despite his apparent willingness to reschedule the meeting until the end of the week or next week, he brought to the airport “a large collection of items, including: among other things, three large suitcases, seven electronic devices, two passports, many other identification documents, hundreds dollars in US currency” and other personal items, according to the statement.

US Securities and Exchange Commission complaint

Meanwhile, an SEC complaint filed Thursday in the U.S. District Court for the Western District of Washington alleges that Wahi, a former Coinbase manager, violated securities laws by repeatedly providing material, non-public information to his brother and friend via text messages and phone calls. using a foreign phone.

According to the SEC, Coinbase had rules preventing employees from trading or reporting to others based on sensitive information.

In April, Coinbase CEO (CEO) Brian Armstrong it says in a blog post that the company “received reports of people appearing to be buying certain assets right before we announced they would be listed.” Without giving specific examples, Armstrong added that there is a chance that someone at the firm could leak information to outsiders, and that it would look for misconduct and contact the authorities for possible prosecution if anything was found.

US officials are stepping up oversight of an industry they say often operates in a gray area. Insider trading is seen as a particular problem.

After years of being relatively cautious about listing tokens, Coinbase made the decision last year to significantly increase this number in order to regain some of the market share it lost to competitors, including Binance Holdings Ltd.

While Coinbase has not been the focus of the government investigation, the allegations could lead to additional scrutiny of the platform.

Securities of crypto assets

SEC Chairman Gary Gensler has long argued that many cryptocurrencies fall under the jurisdiction of the regulator. He also said that digital asset exchanges should register with the agency because they offer trading in these products. Coinbase and other crypto platforms have not yet done so.

The SEC case against the brothers Wahi and Ramini is the first in regards to insider trading in cryptocurrencies. The Wall Street regulator claims that nine of the tokens involved are “crypto asset securities” that fall under its jurisdiction.

Of the nine identified tokens, the largest is an Ethereum-based token called Amp, created by Flexa Network Inc. According to CoinGecko, the market value of the coin is around $700 million.