Ex-Coinbase Employee Charged In First Crypto Insider Trading Case

The US government is cracking down on crypto fraudsters.  A former Coinbase employee and two others have been charged in the first-ever case of insider trading involving cryptocurrencies. 

On July 21, the Southern District of New York announced the unsealing of an indictment against former Coinbase product manager Ishan Wahi, his brother Nikhil Wahi, and his friend Sameer Ramani.  The indictment alleges that Ishan used his Coinbase connections to determine which crypto assets were scheduled to be listed on Coinbase’s exchanges. The group would then purchase the tokens and sell them once the information became public, usually resulting in a rising price.  

The three men traded over 25 different crypto assets on at least 14 occasions and walked away with $1.5M in illicit profits, according to the indictment.

The trio are being charged with wire fraud conspiracy and wire fraud.  The case comes less than two months after former OpenSea employee Nate Chastain was arrested for alleged NFT insider trading.  

“Today’s charges are a further reminder that Web3 is not a law-free zone,” said U.S. Attorney Damian Williams. “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,”  Williams continued.

While there has been a decade-long debate going on in crypto about whether cryptocurrencies are securities, the government is making it clear that it doesn’t matter. 

“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,” said FBI Assistant Director Michael J. Driscoll. “Today’s action should demonstrate the FBI’s commitment to protecting the integrity of all financial markets – both ‘old’ and ‘new.’”  

Not Securities

Coinbase told The Defiant that despite the confusing terminology, none of the assets listed on their platform are securities, and pointed us to their blog post. “We understand that the SEC has separately filed securities fraud charges related to this wrongdoing today. The DOJ did not charge securities fraud,” the Coinbase post reads. “No assets listed on our platform are securities, and the SEC charges are an unfortunate distraction from today’s appropriate law enforcement action.”

At this point, fraud has unfortunately become a part of crypto’s reputation.  Some believe it will continue to get worse.

“The rise in crypto and digital payment crimes, including insider trading and fraud, has, and will likely, be a growing trend in financial crime,” former federal enforcement attorney Braden Perry told The Defiant.  “ Couple the new technology with the traditional methods of financial crime, and the entry of retail customers looking for the latest trends is a recipe for nefarious conduct.”

Influencer Cited

In the indictment, the Southern District of New York confirmed this case was brought to their attention by a “Twitter account that is well-known within the crypto community”, assumed to be crypto influencer Cobie.  After Cobie’s tweet, Coinbase launched an investigation into Wahi and promptly fired him.

Ishan Wahi attempted to flee the United States to India on May 16, but was stopped by law enforcement and prevented from leaving the country.  His brother was also arrested but Ramani remains at large.  All three face a maximum sentence of 20 years in prison if convicted.

With this latest action, US law enforcement is sending a clear message to the crypto community to play by the rules, even as the debate over tokens as securities continues to rage.