The move on Thursday to detain Ishan Wahi, who helped oversee listings for a Coinbase unit focused on investment products, follows a sweeping probe that involved prosecutors in the Southern District of New York and the Securities and Exchange Commission (SEC). The SEC also sued Wahi for allegedly violating the agency’s anti-fraud rules.
The exchange operator wasn’t a focus of the probe and won’t face charges. In a press release, US Attorney Damian Williams said Coinbase cooperated in the investigation.
“Today’s charges are a further reminder that Web3 is not a law-free zone,” he said. “Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street.”
Coinbase lets Americans trade more than 150 tokens, including many that have been added in recent months. Because of the platform’s status as the US’s largest crypto exchange, coins can often see a rush of interest — and a surge in price — immediately after being included.
Wahi tipped off his brother, Nikhil Wahi, and friend Sameer Ramini when tokens were about to be listed by the exchange, according to charges filed on Thursday. Nikhil Wahi and Ramini allegedly used that information to trade dozens of tokens from at least June 2021 until April 2022 for a profit of more than $1 million, the government said.
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Coinbase didn’t immediately respond to a request for comment. A spokesman for Manhattan prosecutors confirmed the arrests. The SEC declined to comment.
Andrew St. Laurent, an attorney for Ishan Wahi, declined to comment. An attorney for Nikhil Wahi didn’t immediately respond to a request for comment. Ramini couldn’t immediately be reached.
Indictment
According to the indictment, after Coinbase set up an interview for May 16 with Wahi in Seattle as part of its internal investigation, he bought a one-way ticket for a flight to New Delhi scheduled to leave in 11 hours.
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 that 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 on May 16. 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
Meanwhile, the SEC’s complaint, filed Thursday in the US District Court for the Western District of Washington, alleges Wahi, the former Coinbase manager, violated securities laws by repeatedly providing material, non-public information to his brother and friend by text and phone calls using a foreign phone.
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 (CEO) 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 Holdings Ltd.
While Coinbase wasn’t a focus of the government probe, the charges could lead to additional scrutiny for the platform.
Crypto asset securities
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.
The SEC’s case against the Wahi brothers and Ramini is its first for crypto insider trading. The Wall Street regulator is alleging that nine of the tokens involved constitute “crypto asset securities,” which would fall under its jurisdiction.
Of the nine tokens identified, the largest is an Ethereum-based token called Amp that was created by Flexa Network Inc. The coin has a market value of about $700 million, according to CoinGecko.
