Insiders from Coinbase grabbed more than $1.5 million on speculation with cryptocurrencies placed on the exchange
One of the world’s largest cryptocurrency exchanges, Coinbase, has become the subject of an investigation by the US Securities and Exchange Commission (SEC) into whether it allowed users to trade digital assets that were not registered as securities. The lawsuit follows allegations of insider trading against a former Coinbase product manager.
On July 21, former Coinbase Product Manager Ishan Wahi, his brother Nikhil Wahi, and their mutual friend Sameer Ramani were charged with fraud in connection with an alleged insider trading scheme using cryptocurrencies. This is the first case of such a criminal case.
It is known that Coinbase periodically adds new crypto assets that can be traded on its platform. The market value of assets usually increased significantly after the exchange announced the listing. This information is strictly confidential and exchange employees are prohibited from sharing it with anyone, including by providing a “hint” to any person who can trade based on this information.
According to the US Department of Justice, from August 2021 until May 2022, Ishan Wahi was a user of a private Coinbase messaging channel reserved for a small number of employees of the crypto exchange who were directly involved in the process of listing its assets. Among other things, the channel was used to discuss “the exact dates of announcements about the launch of new cryptoassets”, which Coinbase did not want to disclose to all of its employees.
It was found that in at least 14 cases, the manager knew in advance about the intentions of Coinbase and about the timing of public announcements about the placement of new cryptoassets.
He passed this information on to his brother and friend. Those, using anonymous Ethereum blockchain wallets, purchased assets that were planned for placement in advance, and then sold them at a profit. Through the insider trading scheme, they earned at least $1.5 million.
In April of this year, the activity of the trinity was noticed. One of the well-known bloggers in the crypto industry posted on Twitter about a digital wallet “that bought hundreds of thousands of dollars worth of tokens exclusively represented in the crypto community.” Coinbase launched an internal investigation and announced on a public blog that any crypto exchange employee who discloses confidential information about the company will be “immediately fired and referred to the appropriate authorities, possibly for criminal prosecution.” […]
Hacker.Ru, 07/22/2027, “Former Coinbase employee accused of insider trading”: It is worth noting that Nikhil Wahi and Samir Ramani, who carried out transactions on the tips of Ishan Wahi, took a number of steps to mask insider information and obfuscate the traces of money. Specifically, the indictment alleges numerous transfers to a wide range of cryptocurrency accounts, transfers of assets through anonymous wallets, and even the creation of accounts in other people’s names. The documents also emphasize that Wahi understood that the information was strictly confidential, but passed it on to his brother and friend for financial gain.
The investigation appears to have begun on April 12, 2022, when a Twitter user, described by authorities as “a well-known account in the cryptocurrency community with hundreds of thousands of followers,” wrote about the discovery of an Ethereum wallet that “spent hundreds of thousands of dollars on tokens, exclusively listed on the Coinbase Asset Listing approximately 24 hours prior to official release.” Then representatives of Coinbase responded to this tweet and said that they were investigating what had happened.
A month later, when Wahi was invited on the carpet to the head of security at Coinbase, he tried to flee the country and bought a one-way ticket to India, and also alerted his brother and Ramani that Coinbase was investigating. However, before boarding the flight, law enforcement stopped Wahi and prevented him from leaving the United States. Now each of the three defendants faces up to 20 years in prison. — Inset K.ru
“Voice of America”, 07/22/2022, “In the United States, the first charge of insider trading in cryptocurrency was filed”: Wahi brothers were arrested in Seattle, Ramani is wanted. Ishan Wahi was released on $1 million bail and ordered to surrender his passport.
Ishan Wahi’s lawyer declared his client’s innocence. A spokesperson for Coinbase said it has provided the results of its internal investigation to law enforcement. — Inset K.ru
The investigation of insider trading on Coinbase was carried out simultaneously by the US Department of Justice and the SEC. Experts associated with the case argue that it is not the reason for a separate investigation by the Securities Commission in relation to the crypto exchange. Sources told BloombergThe SEC began to take a closer look at Coinbase’s practices after the exchange added more than 100 additional tokens to its platform, including the Dogecoin cryptocurrency. When listed for the first time, these types of coins are usually in high demand, but they are highly volatile and their value drops quickly.
Additionally, the SEC filed allegations of securities fraud, after which the value of the shares of the crypto exchange fell by 21 percent. Coinbase General Counsel Paul Grewal disputes the commission’s assertion that the crypto exchange is offering securities, arguing that “none of the assets mentioned in the SEC allegations are considered to be such.”
“Coinbase has a rigorous review and verification process for every digital asset before it is listed on our exchange. The SEC itself has reviewed this process,” Grewal said. “It involves an analysis of whether an asset can be considered a security, as well as an examination of aspects of the asset’s compliance with regulatory requirements and information security.”
Generally, a security is a traded financial asset that has a monetary value and must be registered with the Securities and Exchange Commission.
The problem with cryptocurrencies is that not all digital assets are considered securities.
In 2018, former SEC Chairman Jay Clayton argued that cryptocurrencies that replace “sovereign currencies” such as bitcoin and ether are not securities, but digital assets and tokens used in initial coin offerings (ICOs) are.
The SEC’s position is important because it means Coinbase may be forced to classify some of the cryptocurrencies it offers as regulated financial instruments, experts say. The listing process for securities, such as company shares, involves strict disclosure and registration requirements. Cryptocurrencies, by contrast, are not regulated and therefore not subject to the same level of scrutiny.
Commodity Futures Trading Commission (CFTC) commissioner Caroline Pham called the SEC allegations of securities fraud “a prime example of enforcement regulation.”
“The Securities and Exchange Commission’s statements could have broad implications beyond this single case, highlighting the importance and urgency of regulators working together.”
Commodity Futures Trading Commission Commissioner
The crypto industry in the US and around the world does not fall under a common regulatory framework. The SEC and its chairman Gary Gensler are calling for clearer rules regarding cryptocurrencies, and it is possible that the Coinbase investigation will be another step towards regulating the digital currency market.
Analysts note that Coinbase is one of the most conservative crypto exchanges in terms of listing tokens. But this did not save her from the investigation of the commission. The solidarity shown earlier with Ukraine did not help either. As you know, in March Coinbase blocked more than 25 thousand e-wallet addresses associated with Russian individuals and legal entities, suddenly accusing them of illegal activities.