A former Coinbase employee and two others have been charged in what federal authorities have described as the first case of U.S. government insider trading in cryptocurrency.
Ishan Wahi, chief product officer at the cryptocurrency exchange, and his brother Nikhil Wahi were arrested Thursday in Seattle. They and a third defendant, their friend Sameer Ramani, who remains at large, also face civil charges from the US financial watchdog, the Securities and Exchange Commission (SEC).
Prosecutors alleged that Ishan Wahi, 32, shared confidential information about upcoming announcements of new cryptocurrency assets that Coinbase was planning or considering listing on its exchange. Her brother and Ramani reportedly exchanged at least 14 times before such announcements between June 2021 and April 2022, prosecutors said.
Nikhil Wahi, 26, and Ramani, 33, used anonymous Ethereum blockchain wallets to acquire the assets ahead of the Coinbase announcements, then sold those assets for a profit of at least $1.5 million (1 £.25million), prosecutors claimed.
Damian Williams, the US attorney for the Southern District of New York, said Web3 – the catch-all term for the latest iteration of the internet – was not immune from authorities. Last month, he filed an insider trading lawsuit against a former employee of OpenSea, the largest non-fungible token (NFT) marketplace.
“Today’s charges are yet another reminder that Web3 is not a lawless zone,” Williams said. “Last month, I announced the first-ever case of insider trading involving NFTs, and today I am announcing the first-ever case of insider trading involving cryptocurrency markets. Our message with these accusations is clear: Fraud is fraud is fraud, whether it happens on the blockchain or on Wall Street.
Howard Fischer, a partner at New York law firm Moses & Singer, said the individuals were charged with wire fraud — which refers to fraud committed on any type of electronic device — because the crypto assets are not not technically defined as securities, which are negotiable financial securities. assets such as stocks or bonds.
Historically, this has allowed crypto assets to circumvent SEC and US Treasury Department regulations, which has both enhanced the appeal of crypto assets while making them more vulnerable to fraud due to a lack of investor protection.
“This is not an insider trading case because insider trading does not exist for non-security like a crypto asset, so prosecutors had to use wire fraud,” Fischer said.
In a blog post, Coinbase CEO Brian Armstrong said the SEC’s decision to file securities fraud charges against the three men was an “unfortunate distraction.” Armstrong said Coinbase reported concerns about the three people to the Justice Department.
“Coinbase takes allegations of improper use of company information very seriously, as our prompt investigation into this matter shows. Again, we have zero tolerance for this type of misconduct and will not hesitate to take action against any employee when we discover wrongdoing,” Armstrong said.
Fischer said it was unlikely the SEC would be able to set a precedent on cryptocurrencies and securities with its civil indictment.
“While the SEC has also filed a lawsuit, alleging that the affected assets are securities, as that lawsuit is likely to be stayed pending resolution of the criminal case, this issue is unlikely to be resolved.”
Andrew St Laurent, a lawyer for Ishan Wahi, declined to comment. A lawyer for Nikhil Wahi did not immediately respond to requests for comment. Reuters could not immediately identify a lawyer for Ramani.