A guilty plea by Ishan Wahi ends the first crypto insider trading criminal case, but sidestepped the question of whether the tokens were securities.
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Former Coinbase product manager Ishan Wahi has pleaded guilty to two counts of wire fraud — marking the first insider trading conviction involving cryptocurrencies.
Wahi was closely involved in the process of vetting and choosing new tokens to list on the major crypto exchange. A Coinbase listing has long resulted in a sizable price bump.
He had given details about which coins would be listed — and when — to his brother Nikhil Wahi and business associate Sameer Ramani. The two traded accordingly, making about $1.1 million between June 2021 and April 2022.
Nikhil Wahi already pleaded guilty for a 10-month sentence, and Ramani is at large.
Each charge carries a maximum penalty of up to 20 years in prison, although Wahi is unlikely to receive anything like this.
"Ishan Wahi is the first insider to admit guilt in an insider trading case involving the cryptocurrency markets, U.S. Attorney Damian Williams said in a statement. He added:
"Whether it occurs in the equity markets or the crypto markets, stealing confidential business information for your own personal profit or the profit of others is a serious federal crime … We will continue to use our expertise to prosecute this crime no matter what form it takes and where it occurs."
Tumbling Down
Wahi's scheme began to crumble when Crypto Twitter caught on via open blockchain transactions records, the DoJ said.
It noted that on April 12 that a wallet "bought hundreds of thousands of dollars of tokens exclusively featured in the Coinbase asset listing post about 24 hours before it was published."
Coinbase's own Twitter account announced that it was already investigating the case. On May 11, the DoJ said, Coinbase's director of security operations emailed Wahi, telling him to attend "an in-person meeting relating to Coinbase's asset listing process" on May 16.
Wahi confirmed that he would be there. He was arrested on May 15, just prior to boarding a flight to India on a one-way ticket, the DoJ said.
The SEC Comes Next
It's noteworthy that Williams only charged the trio with wire fraud rather than securities fraud, escaping a court ruling on whether cryptocurrencies are securities, as the Securities and Exchange Commission (SEC) maintains.
The same cannot be said of the SEC concurrent civil case, which went into great detail explaining why nine cryptocurrencies in the Wahi case were, in its opinion, unregistered securities under the agency's purview.
The Wahis continue to fight that securities fraud case, saying in a dismissal motion on Feb. 6 that the SEC is trying "to seize broad regulatory jurisdiction over a massive new industry."
The agency made that perfectly clear in both the charges filed and in the July 21 announcement.
"We are not concerned with labels, but rather the economic realities of an offering," said Gurbir Grewal, director of the SEC's Division of Enforcement. He said:
"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. Rest assured, we'll continue to ensure a level playing field for investors, regardless of the label placed on the securities involved."
NFTs Too
The case was brought last July, less than two months after Williams brought another ground-breaking insider trading case against Nate Chastain, a product manager at top NFT marketplace OpenSea.
In that case, Williams' office alleged, Chastain used advance knowledge of which NFT collections would be featured on the OpenSea homepage — again, giving them a price bump.
"With the emergence of any new investment tool, such as blockchain supported non-fungible tokens, there are those who will exploit vulnerabilities for their own gain, " said FBI Assistant Director-in-Charge Michael Driscoll, in a statement announcing the allegations. "The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way."
