SEC-Coinbase: crypto insider trading – The Cryptonomist

According to the latest news, reports indicate that the SEC has reached an “agreement in principle” to resolve the insider trading case involving the product manager of crypto exchange Coinbase. Specifically, both Ishan and Nikhil Wahi pleaded guilty to criminal insider trading charges after being arrested by US authorities in July 2022.

Crypto news: the SEC toward resolving the case with Coinbase

The US Securities and Exchange Commission (SEC) is moving forward with a resolution to the case against a former product manager of Coinbase Global, the popular crypto exchange, accused of insider trading.

Specifically, in a filing on 3 April in the US District Court for the Western District of Washington, the SEC said it had reached “an agreement in principle” with Ishan Wahi.

The former Coinbase employee, along with his brother Nikhil Wahi and partner Sameer Ramani, allegedly used confidential information obtained from the crypto exchange to profit from new token listings, totaling more than $1 million, according to the charges.

Specifically, the filing states the following:

“Any settlement recommended by SEC staff must be reviewed within the SEC and approved by the SEC Commissioners before it can be submitted to the Court for approval, a process which can take a number of weeks.”

Charges by the SEC

But why was the former product manager of crypto exchange Coinbase charged by the SEC? Authorities arrested Ishan and Nikhil in July 2022, reportedly while they were attempting to fly to India, and both brothers later pleaded guilty to parallel criminal insider trading charges.

According to the filing on 3 April, the SEC had engaged in “good faith discussions” with Nikhil, who was sentenced to ten months in prison in January. The case against the Wahi brothers was one of the first to involve insider trading on a major US cryptocurrency exchange, prior to platforms such as FTX and Celsius declaring bankruptcy.

The original complaint alleged that Ishan had access to information about cryptocurrency listings on the exchanges controlled by Coinbase while holding the position of product manager from August 2021 to May 2022.

In addition, the individual would then pass this information on to his brother and partner Ramami to invest in the tokens before Coinbase’s pricing caused prices to rise.

Noteworthy in the context of the SEC’s crackdown on cryptocurrencies, the case saw the regulator label nine of the tokens as “crypto asset securities” within its purview.

The SEC subsequently issued a Wells notice, warning of potential enforcement action, to Coinbase itself in March. The exchange’s chief legal officer, Paul Grewal, said the warning came despite numerous discussions with SEC representatives.

SEC’s Wells warning toward crypto exchange Coinbase

As anticipated, crypto exchange Coinbase said it received a Wells notice from the US Securities and Exchange Commission recommending that the regulator take enforcement action.

In a blog post on 22 March, Coinbase said the “legal threat” could potentially target the exchange’s staking program, Coinbase Earn, listed digital assets, its wallet as well as Coinbase Prime services.

A Wells notice letter typically warns a company that the SEC could follow with an enforcement action, but Coinbase has not provided details other than possible violations of securities laws.

Paul Grewal stated in this regard:

“We specifically asked the SEC to identify which assets on our platforms they believed could be securities, and they refused to do so. Wells’ notice also comes after Coinbase provided the SEC with several filing proposals over the months, to which the SEC ultimately declined to respond.”

However, the cryptocurrency exchange said its products and services will continue to function as usual throughout the investigation.

Grewal also took issue with the direct dialogue approach often cited by SEC Chairman Gary Gensler, saying that Coinbase met with SEC representatives “more than thirty times in nine months” but for the most part received no feedback on its proposals.

Not only that, Coinbase also filed a petition with the SEC on 20 March in an attempt to explain to the regulator that staking may not necessarily be universally considered a security.

The exchange claimed that none of its listed assets were considered securities under the regulator’s purview and any potential targeting of its portfolio was based on a “misunderstanding of cryptographic products, resources and services” by the SEC.