Ex-Coinbase manager charged in crypto insider trading case

Social media storm

Manhattan prosecutors launched their investigation in April, after complaints surfaced on social media about unusually well-timed investments in tokens that were listed on Coinbase. The probe gained steam in mid-May, when authorities prevented Wahi from leaving the country.

According to prosecutors, Coinbase arranged an interview for May 16 with Wahi in Seattle as part of its internal investigation into the suspicious trading activity. The night before, Wahi bought a one-way ticket for a flight to New Delhi scheduled to leave in 11 hours.

“Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street.”

Manhattan US Attorney Damian Williams

The next day, about 35 minutes before the interview was scheduled to begin, Wahi emailed Coinbase’s director of security operations to say that he “had to fly back home” but that the meeting could be rescheduled, according to the indictment. In the 11-hour period, Wahi called and texted his brother and Ramani, sending them images of the messages he had received from Coinbase’s internal security director.

Law enforcement agents showed up at the airport before Wahi could board his flight. Despite his apparent willingness to reschedule the meeting for later in the week or the following week, he brought to the airport an “extensive array of belongings, including, among other items, three large suitcases, seven electronic devices, two passports, multiple other forms of identification, hundreds of dollars in US currency” and other personal effects, according to the filing.

SEC complaint

The SEC’s complaint, filed Thursday in federal court in Seattle, alleges that Ishan Wahi violated securities laws by repeatedly providing material, non-public information to his brother and friend by text and phone calls using a foreign phone. The said its case against the Wahi brothers and Ramini was its first for crypto insider trading.

Nikhil Wahi and Ramani repeatedly traded on that information and recklessly or “consciously avoided knowing” that Ishan was breaching his duty of care to Coinbase in providing the information, according to the complaint. The markets regulator asked the court to order them to pay civil penalties and disgorgement of unspecified amounts.

The SEC said that it was deeming nine of the digital tokens the men traded in to be “securities”– an important designation for the agency as it continues to exert its authority over the volatile digital asset market.

“We are not concerned with labels, but rather the economic realities of an offering,” SEC Enforcement Director Gurbir Grewal said in a statement. “In this case, those realities affirm that a number of the crypto assets at issue were securities, and, as alleged, the defendants engaged in typical insider trading ahead of their listing on Coinbase,” he said.

Coinbase had policies in place to restrict employees trading or tipping off others based on confidential information, according to the SEC.

In April, Coinbase chief executive officer Brian Armstrong said in a blog posting that the company had “received reports of people appearing to buy certain assets right before we announced they’d be listed.” Without providing specific examples, Armstrong added that there’s a chance that someone at the firm could leak information to outsiders and that it would hunt for misconduct and make referrals to authorities for possible prosecution if anything was found.

American officials have been stepping up their oversight of an industry they say often operates in legal gray areas. Insider trading is seen as a particular problem.

After years of taking a relatively cautious approach to listing tokens, Coinbase made the decision last year to significantly increase that number to take back some of the market share it had lost to competitors including rival Binance.

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While Coinbase wasn’t charged, the cases could lead to additional scrutiny for the platform. In a press release, the US Attorney credited the company for cooperation in the investigation.

SEC chair Gary Gensler has long argued that many cryptocurrencies fall under the regulator’s jurisdiction. He’s also said that digital-asset exchanges should register with the agency because they offer trading in those products. Coinbase and other crypto platforms haven’t done so thus far.

Bloomberg