US charges former Coinbase employee with insider trading

US prosecutors charged a former Coinbase employee and two associates with insider trading in the latest sign of how authorities are stepping up enforcement in the digital asset industry.

Ishan Wahi, 32, was charged with sharing with his brother and friend tips on digital tokens that were due to be listed on Coinbase, according to an indictment unsealed in Manhattan federal court.

The charges highlight how US prosecutors are taking a tougher approach in stamping out alleged wrongdoing in the $1tn cryptocurrency market, despite the industry at large operating under a patchwork of regulations.

“Today’s charges are a further reminder that Web 3 is not a law-free zone,” said Damian Williams, US attorney for the southern district of New York.

Cryptocurrencies can be started by anyone, but only the most devoted digital asset traders typically access them before they are available on big exchanges. Often when a token lists on an exchange such as Coinbase, Binance or FTX its value surges as it becomes easily available.

Wahi, a former Coinbase product manager, is accused by US prosecutors of finding out from an internal Coinbase messaging group which coins were due to be listed, and then on 14 occasions passing on the information to his brother Nikhil Wahi, 26, and friend Sameer Ramani, 33. Nikhil Wahi and Ramani then purchased the crypto tokens before the listing using anonymous wallets and later sold them, according to the indictment.

The defendants earned realised and unrealised gains of at least $1.5mn through the alleged scheme, which took place from June 2021 to April 2022, according to the indictment.

Ishan Wahi was charged with two counts of wire fraud and two counts of conspiracy to commit wire fraud, while Nikhil Wahi and Sameer Ramani were charged with one count of each alleged offence.

The Securities and Exchange Commission, Wall Street’s top markets regulator, filed parallel civil charges against the trio, accusing them of “violating the antifraud provisions of the securities laws”.

An SEC official said that this was the agency’s first insider trading probe involving digital assets. The investigation, which is ongoing, could have consequences for the debate around whether digital tokens qualify as securities — one of the key battlegrounds being hashed out between regulators, legislators and crypto groups.

The SEC alleged that during the scheme, Nikhil Wahi and Ramani traded in at least 25 crypto assets, at least nine of which met the definition of a security, giving it jurisdiction to bring an insider trading case, the official said.

Under chair Gary Gensler, the SEC has heightened scrutiny of the crypto industry, warning of potential perils for investors. Gensler has argued that most tokens are securities and fall under the SEC’s purview while also urging crypto platforms to register with the agency.

Ishan Wahi attempted to flee the US for India in mid-May after he was approached by Coinbase’s security staff regarding the alleged incident, the prosecutors said. He was later stopped by law enforcement.

The Wahi brothers were arrested on Thursday morning in Seattle while Ramani remains at large.

Coinbase chief executive Brian Armstrong said in a blog post on Thursday that the group had a “zero tolerance for this kind of misconduct”.

Ishan Wahi’s attorney declined to comment, while Nikhil Wahi’s representative could not immediately be reached. It could not immediately be determined who was representing Ramani.