The United States Securities and Exchange Commission and Attorney’s Office for the Southern District of New York have recently charged a former product manager at Coinbase, Ishan Wahi, and two others in the first-ever crypto insider trading tipping scheme, as TheCoinRise reported.
On Thursday, U.S. Attorney Damian Williams charged the individuals for allegedly misusing Coinbase’s confidential information regarding which crypto assets were scheduled to be listed on the exchange platform.
Soon after the charges, the SEC lodged a separate complaint claiming nine of the 25 digital tokens used in insider trading were digital asset securities. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated:
“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.”
Coinbase responds to SEC’s charges
In response to SEC’s allegations, Coinbase Chief Legal Officer Paul Grewal wrote a blog post that clearly denies that the exchange listed any securities. The post titled “Coinbase does not list securities. End of story.” states that none of these assets are securities and that the exchange has a thorough process to review each digital asset before listing it on the platform. Notably, the process is reviewed by the SEC itself.
It is interesting to note that the Department of Justice reviewed the facts by the SEC and chose not to file securities fraud charges against the there individuals. On the other hand, Caroline Pham, the CFTC commissioner, said that the SEC actions are “a striking example of ‘regulation by enforcement'”
— Caroline D. Pham (@CarolineDPham) July 21, 2022
Notably, Coinbase considers listing information as confidential and issued warnings to its staff members not to use it as the basis for trading or to tip off third parties. Ishan frequently leaked to his brother Nikhil Wahi and his friend Sameer Ramani the timing and details of upcoming listing announcements, violating his obligations, from at least June 2021 to April 2022.
As a result, Nikhil Wahi and Ramani allegedly bought over 25 crypto assets, at least nine of which, according to SEC, were securities, which frequently contributed to an increase in the assets’ prices, and typically sold them for a profit soon after the official announcements. The extensive insider trading scheme resulted in illicit gains of more than $1.1 million.