A former Coinbase product manager, along with his brother and friend, has been charged with "wire fraud conspiracy in connection with a scheme to commit insider trading in cryptocurrency assets by using confidential Coinbase information," according to attorneys from the Southern District Court in Manhattan (opens in new tab).
The complaint filed in the federal district court in Seattle where Coinbase is located charges Ishan and Nikhil Wahi, along with Sameer Ramani, with "violating the antifraud provisions of the securities laws and seeks permanent injunctive relief, disgorgement with prejudgment interest, and civil penalties." Translating the legalese, the complaint alleges: They've been doing insider trading, they must immediately stop insider trading, and they better pay back what they earned, on top of a fine.
The trio earned over $1.1 million in "an alleged insider trading scheme that repeatedly used material, nonpublic information to trade ahead of Coinbase listing announcements,” said Carolyn M. Welshhans, acting chief of the SEC's crypto and cyber unit in a statement (opens in new tab).
According to the filing, the almost year-long scheme involved Ishan Wahi providing information about upcoming token listings on Coinbase to his brother and friend. They then allegedly used this information to buy cryptocurrencies for cheap before the Coinbase announcement and sell them off fast for profit once their price went up.
Whenever Coinbase announces that a new cryptocurrency is coming to its platform, the crypto in question often skyrockets in value. This is known as the "Coinbase effect."
Wahi and Ramani made at least 14 transactions involving 25 crypto assets; 9 were identified as securities that fall under the jurisdiction of the SEC. Gurbir Grewal, director of enforcement at the SEC, said the "defendants engaged in typical insider trading ahead of their listing on Coinbase." He then continued that the SEC will continue "to ensure a level playing field for investors, regardless of the label placed on the securities involved."
Damian Williams, US attorney out of the Southern District of NY, said in a statement, "Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street. And the Southern District of New York will continue to be relentless in bringing fraudsters to justice, wherever we may find them.”
Last month, the same office filed charges against a former-OpenSea employee for the first ever insider trading scheme involving NFTs (opens in new tab).
The Wahi brothers were arrested today in Seattle and are expected to appear in federal court today. Sameer Ramani is at large. Lawyers for Ishan Wahi said he is "innocent of all wrongdoing and intends to defend himself vigorously."