On July 21, the US Department of Justice (DOJ) made a shocking announcement — the agency has arrested two people on charges of cryptocurrency insider trading.
A former product manager at Coinbase is alleged to have tipped off two others before crypto tokens were due to be listed on the cryptocurrency exchange. Prosecutors stated that the product manager, who was privy to confidential information as a result of his work, shared it with his associates ahead of time.
Insider Trading on Coinbase
Ishan Wahi used to work at Coinbase and is believed to have shared information with his brother, Nikhil Wani, and a friend, Sameer Ramani. While the Wahi brothers have been taken into custody in Seattle, Ramani remains at large.
Nikhil Wahi, 26, and Ramani, 33, supposedly acquired digital assets linked to Coinbase’s announcements, ahead of schedule, between June 2021 and April 2022. Prosecutors believe that their cryptocurrency insider trading helped them amass at least $1.5 million worth of profits illegally. In a statement, US Attorney Damian Williams said, “Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street.”
In a statement, the lawyer for Ramani affirmed his innocence, stating he is “innocent of all wrongdoing and intends to defend himself vigorously.” Prosecutors stated that when Coinbase summoned Ishan Wahi for a meeting, in May, he decided to flee the country and bought a one-way ticket to India. However, law enforcement officials prevented him from boarding the flight. After he appeared at the Seattle court, his bail was set at $1 million. He was asked to surrender his passport and his next federal court appearance has been set for August 1 in Manhattan.
FBI Assistant Director Michael J Driscoll said: “Although the allegations in this case relate to transactions made in a crypto exchange – rather than a more traditional financial market – they still constitute insider trading. As alleged, the defendants made illegal trades in at least 25 different crypto assets and realized ill-gotten gains totaling approximately $1.5 million. Today’s action should demonstrate the FBI’s commitment to protecting the integrity of all financial markets – both ‘old’ and ‘new.’”
Philip Martin, Coinbase’s chief security officer, said the company had shared findings with prosecutors from an internal investigation into the trading. He took to Twitter to assure customers that the company is “committed to doing our part to ensure that all market participants have access to the same information.”
Furthermore, other than the Coinbase insider trading charges, the US Securities Exchange Commission (SEC) alleged that Nikhil Wahi and Ramani purchased and sold at least 25 crypto assets for a profit, nine of which are securities. The SEC confirmed that the investigation is ongoing and the agency is mulling over pressing charges against Coinbase, as nine of the assets were securities.
On July 22, in a blog post, the crypto exchange acknowledged that the DOJ is investigating misuse of information by a former employee that hints at Coinbase insider trading. The company clarified that the DOJ has not filed securities fraud charges against those involved. Coinbase also called out the SEC for not initiating a dialogue before pressing charges. It highlighted the fact that “the US doesn’t have a clear or workable regulatory framework for digital asset securities. And instead of crafting tailored rules in an inclusive and transparent way, the SEC is relying on these types of one-off enforcement actions to try to bring all digital assets into its jurisdiction, even those assets that are not securities.” The company posted on twitter that it shared information with the DOJ after conducting an internal investigation, and actively monitors illegal activity.
Conclusion
Cryptocurrency insider trading has started gathering steam, as last month investigators charged a former product manager at OpenSea, a marketplace for NFTs, with similar charges. Prosecutors believe that it is the first case of insider trading involving digital assets.
