A former employee of Coinbase Global (Nasdaq: COIN) has been indicted by the United States Attorney’s office for the Southern District of New York for allegedly committing insider trading in cryptocurrency assets during his stint at the firm. This marks the country’s first-ever scheme of this nature that’s headed to court.
The legal action is based on an FBI investigation that Coinbase’s ex-product manager Ishan Wahi tipped his brother and his associate about which crypto assets were scheduled to be listed on the exchange. The state counsel said that by misappropriating this confidential information, Wahi and his associates gained profit from placing trades in those crypto assets in advance.
“Based on confidential information provided by [Ishan], [his brother Nikhil Wahi] and [his friend and associate Sameer Ramani] collectively traded shortly in advance of at least 14 separate Coinbase public listing announcements concerning at least 25 different crypto assets. As a result of the insider trading scheme, [Nikhil and Ramani] collectively generated realized and unrealized gains totaling at least approximately US$1.5 million,” the state attorney’s office said in a statement.
Nikhil and Ramani used anonymous Ethereum blockchain wallets, as well as new wallets without any prior transaction history “to further conceal their involvement in the scheme.”
The law enforcement official also said that Ishan attempted to flee by purchasing a one-way ticket to India on May 15 after agreeing to Coinbase’s invite for an in-person meeting scheduled the day after. He was later apprehended by law enforcement officers after saying he was already in India before his flight took off.
The meeting was supposed to be with the director of security operations as the company was then investigating the insider trading allegation brought about by a tweet that noticed the frontrunning pattern.
CEO Brian Armstrong said in a tweet that its own investigation led to identifying the same three persons involved in a possible frontrunning scheme, one of which is a Coinbase employee that the firm terminated.
“This is a great reminder for everyone in crypto, and at Coinbase, that frontrunning is illegal and erodes trust. We will investigate and refer bad actors to law enforcement, and they will face real legal consequences including serving prison time,” Armstrong tweeted.
Ishan was charged with two counts of wire fraud conspiracy and two counts of wire fraud, while Nikhil and Ramani were charged with one count of each offense. Each count carries a maximum sentence of 20 years.
“[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,” said U.S. Attorney Damian Williams.
The Wahi brothers were both arrested following the indictment while Ramani remains to be at large.
In June 2022, watchdog Tech Inquiry identified documents that point to a US$1.4 million contract entered by Coinbase to sell features to the US Immigrations and Customs Enforcement data that enables Homeland Security to track down and identify crypto traders.
Coinbase Global last traded at US$73.98 on the Nasdaq.
Information for this briefing was found via US Department of Justice and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.