Coinbase and insider trading cases

The case of three former Coinbase managers charged by the SEC with insider trading. 

SEC uncovers more insider trading cases in Coinbase issue

In late July, the U.S. Securities and Exchange Commission (SEC) filed formal insider trading charges against a former Coinbase manager and two other employees of the U.S. cryptocurrency exchange. 

The charges relate to the purchase of several tokens before the news came out that Coinbase would later list them, which usually causes a large rise in the assets in question. 

This one from the SEC would be the first enforcement action with such charges brought against a cryptocurrency company and could be yet another sign that the industry should be regulated as soon as possible, just as traditional finance products are.

The indictment filed in a Seattle court would, if upheld, reinforce the theory put forward by Chairman Gary Gensler that cryptocurrencies are as same as securities. This is precisely why the SEC for the past two years has been in litigation with several companies, including Ripple, which is alleged to have sold securities without authorization. But in this case, the lawsuit would seem to be turning in favor of the crypto company.

Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said about the charges brought against former coinbase employees: 

“We are not concerned with labels, but rather the economic realities of an offering. 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.”

Three managers involved in the charges revealed

Ishan Wahi, product manager of the cryptocurrency exchange, and his brother, Nikhil Wahi, were arrested Thursday in Seattle. While a third defendant, Sameer Ramani, is reportedly still at large.

Nikhil Wahi, 26, and Ramani, 33, according to charges brought against them by the SEC, allegedly used anonymous Ethereum blockchain wallets to acquire digital tokens, before Coinbase’s announcements, and then sold them for a profit of at least $1.5 million (£1.25 million), prosecutors said.

New York District Attorney Damian Williams, who is handling the case along with Michael J. Driscoll, said of the charges against the exchange employees:

“Today’s charges are a further reminder that Web3 is not a law-free zone,Just last month, I announced the first ever insider trading case involving NFTs, and today I announce the first ever insider trading case involving cryptocurrency markets. Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street.”

Howard Fischer, a partner at the New York law firm Moses & Singer, which handles the defense of Coinbase and other cryptocurrency companies, said the individuals were charged with wire fraud, not insider trading:

“It’s not an insider trading case because there is no such thing as insider trading for a non-security like a crypto asset, so the prosecutors have had to use wire fraud.”

Coinbase CEO and founder Brian Armstrong also spoke on the issue:

“Coinbase takes allegations of improper use of company information very seriously, as demonstrated by our rapid investigation of this matter. Again, we have zero tolerance for this kind of misconduct and will not hesitate to take action against any employee when we find wrongdoing.”