Three people allegedly used multiple Ethereum wallets to purchase certain tokens in advance of at least 14 separate Coinbase public listing announcements.
United States authorities have brought charges against three people for wire fraud conspiracy and wire fraud in connection with a scheme to commit insider trading using crypto, one of whom was a former product manager at Coinbase Global.
In a Thursday announcement, the U.S. Attorney’s Office for the Southern District of New York, in conjunction with the New York Field Office of the Federal Bureau of Investigation, said it had filed an indictment against former Coinbase Global product manager Ishan Wahi as well as his brother Nikhil Wahi and associate Sameer Ramani. The trio allegedly used confidential information Ishan obtained from Coinbase in regard to which tokens would be listed on the exchange to make roughly $1.5 million in gains from trading 25 different cryptocurrencies.
Three charged in first ever cryptocurrency insider trading tipping scheme https://t.co/cdTcwQQOau
— US Attorney SDNY (@SDNYnews) July 21, 2022
According to the authorities, Ishan was privy to certain information on listing cryptocurrencies on exchanges controlled by Coinbase in his position as a product manager from August 2021 to May 2022, a period that encompassed the launch dates of tokens. The U.S. Attorney’s Office alleged that from June 2021 to April 2022, Ishan passed on information related to the launch date of tokens to his brother or Ramani to invest in the cryptocurrencies before an anticipated price jump due to a major exchange like Coinbase listing the asset. The indictment specifically mentioned $7,000 in profits from trading Tribe (TRIBE), $13,000 from Alchemix (ALCX), Gala (GALA), Ethereum Name Service (ENS) and Powerledger (POWR), and $900,000 from XYO.
The trio allegedly used the insider trading scheme on at least 14 separate Coinbase public listing announcements, using multiple Ethereum blockchain wallets to make and transfer the purchases, and accounts at centralized exchanges in the names of others. Authorities arrested Ishan and Nikhil in Seattle on Thursday while Ramani remains at large.
“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 Driscoll.
The U.S. Securities and Exchange Commission also announced its own parallel charges against the two Wahis and Ramani, claiming at least 9 of the 25 assets the trio allegedly engaged in insider trading over were securities that had netted them $1.1 million in gains — POWR, Kromatika (KROM), DFX Finance (DFX), Amp (AMP), Rally (RLY), Rari Governance Token (RGT), DerivaDAO (DDX), LCX, and XYO. The regulatory body filed a complaint alleging the three individuals violated the antifraud provisions of securities laws. The SEC said it sought permanent injunctive relief, disgorgement and civil penalties.
“We are not concerned with labels, but rather the economic realities of an offering,” said SEC enforcement director Gurbir Grewal. “In this case, those realities affirm that a number of the crypto assets at issue were securities and, as alleged, the defendants engaged in typical insider trading ahead of their listing on Coinbase.”
Related: SEC reportedly launches investigation into insider trading on exchanges
Many in the crypto community became aware of some of the alleged incidents in the case in April, when online sleuths discovered several Ethereum wallets had purchased large amounts of six tokens, prompting claims of insider trading before a major listing announcement by Coinbase. CEO Brian Armstrong said at the time that “there is always the possibility that someone inside Coinbase could, wittingly or unwittingly, leak information to outsiders engaging in illegal activity” and the exchange would conduct investigations and coordinate with outside law firms if needed:
“If these investigations find that any Coinbase employee somehow aided or abetted any nefarious activity, those employees are immediately terminated and referred to relevant authorities (potentially for criminal prosecution).”
The U.S. Attorney’s Office reported that Coinbase’s director of security operations contacted Ishan on May 11 to arrange a meeting related to the exchange’s asset listings. Ishan attempted to board a one-way flight to India in advance of the scheduled May 16 meeting, but was stopped by law enforcement.
According to a Thursday tweet from Coinbase chief information security officer Philip Martin, the exchange provided the Wahis’ and Ramani’s information to the authorities following an internal investigation. A company blog post stated that Coinbase took “allegations of improper use of company information very seriously” and had “zero tolerance for this kind of misconduct.” However, while the company seemed to support the SDNY’s actions in charging the three individuals, it pushed back against the SEC labeling 9 tokens as securities:
“No assets listed on our platform are securities, and the SEC charges are an unfortunate distraction from today’s appropriate law enforcement action.”
At the time of publication, Ishan’s LinkedIn profile was not visible to the public, and his Twitter account was listed as protected. In a March blog post for Coinbase, the former product manager wrote about efforts for the exchange to provide “more transparency and information for newly tradable assets,” specifically mentioning expanding its offerings.
