In the most recent example of how law enforcement is stepping up enforcement in the digital asset sector, US prosecutors charged a former Coinbase employee and two associates with insider trading.
According to an indictment that was unsealed in Manhattan federal court, Ishan Wahi, 32, was accused of giving advice on digital tokens that were scheduled to be listed on Coinbase to his brother and a friend.
The accusations demonstrate how US prosecutors are acting more firmly to stop alleged wrongdoing in the $1 trillion cryptocurrency market, despite the fact that the sector as a whole is subject to a patchwork of laws.
The charges announced today serve as yet another reminder that Web 3 is not a law-free haven, according to US attorney Damian Williams for the southern district of New York.
Anyone can create a cryptocurrency, but only the most devoted digital asset traders typically have access to it before it is listed on a major exchange. A token's value frequently increases when it is listed on an exchange like Coinbase, Binance, or FTX because it is now more widely accessible.
US prosecutors accuse Wahi, a former product manager for Coinbase, of learning from a Coinbase internal messaging group which coins were scheduled to be listed, and on 14 occasions informing his brother Nikhil Wahi, 26, and friend Sameer Ramani, 33, of the information. The crypto tokens were then bought by Nikhil Wahi and Ramani prior to the listing using anonymous wallets, and they later sold them, according to the indictment.
The alleged scheme, which allegedly took place between June 2021 and April 2022, resulted in gains realized and unrealised for the defendants of at least $1.5 million, according to the indictment.
Nikhil Wahi and Ramani were each charged with one count of each alleged offense, while Ishan Wahi was charged with two counts of wire fraud and two counts of conspiracy to commit wire fraud.
In parallel civil lawsuits, the Securities and Exchange Commission, Wall Street's top market watchdog, charged the group with "violating the antifraud provisions of the securities laws."
This was the SEC's first investigation into insider trading involving digital assets, according to an SEC official. The investigation, which is still ongoing, may have an impact on the key point of contention between legislators, regulators, and the crypto community: whether digital tokens count as securities.
According to the SEC, Nikhil Wahi and Ramani traded in at least 25 crypto assets during the scheme, at least nine of which qualified as securities, giving the SEC the right to file an insider trading case.
The SEC has increased its examination of the cryptocurrency market under chair Gary Gensler and issued investor warnings about potential risks. In addition to urging crypto platforms to register with the SEC, Gensler has argued that the majority of tokens are securities and are therefore subject to its regulation.
Ishan Wahi was allegedly approached by Coinbase's security team about the alleged incident in mid-May and then made an attempt to leave the country for India. He was stopped by the police.
While Ramani is still at large, the Wahi brothers were taken into custody in Seattle early on Thursday.
In a blog post published on Thursday, Coinbase CEO Brian Armstrong stated that the company had "zero tolerance for this kind of misconduct."
While it was impossible to reach Nikhil Wahi's representative right away, Ishan Wahi's lawyer declined to comment. It was not immediately clear who was defending Ramani.
By fLEXI tEAM