Ishan Wahi, a former product manager at cryptocurrency giant Coinbase, has been sentenced to two years in prison for tipping off colleagues in advance on which digital assets would be listed on the exchange.
Wahi was sentenced today by US district judge Loretta Preska on the charge of providing confidential business information about upcoming Coinbase crypto asset listings to his brother and friend, so that they were able to place profitable trades in advance of the public listing announcements. Wahi had previously pled guilty to two counts of conspiracy to commit wire fraud.
US attorney Damian Williams said: “Ishan Wahi… violated the trust placed in him by his employer by tipping others with valuable confidential information regarding Coinbase’s planned token listings.
“Today’s sentence should send a strong signal to all participants in the cryptocurrency markets that the laws decidedly do apply to them. The Southern District of New York will hold those who engage in insider trading to full account, regardless of whether their illegal conduct occurs in the equity markets or in the market for crypto assets.”
Coinbase, one of the largest cryptocurrency exchanges in the world, periodically adds new crypto assets to its listings – which typically results in a material increase in market value for those assets. Coinbase policy is therefore to keep all listings information strictly confidential, and the exchange expressly prohibits its employees from sharing such information.
Wahi worked at Coinbase from October 2020 as a product manager assigned to an asset listing team, and was directly involved in the confidential listing process with detailed knowledge of the assets and their listings timings.
“On multiple occasions between June 2021 and April 2022, Wahi violated his duties of trust and confidence to Coinbase by providing confidential business information that he learned in connection with his employment at Coinbase to Nikhil Wahi and Sameer Ramani so that they could secretly engage in profitable trades around public announcements by Coinbase that it would be listing certain crypto assets on Coinbase’s exchanges,” said the US Attorney’s Office in a statement.
“Following Coinbase’s public listing announcements, on multiple occasions, Nikhil Wahi and Ramani sold the crypto assets for a profit.”
According to reports, information was shared on at least 14 occasions, with the tip-offs leading to illegal trades in up to 25 different crypto assets to generate profits of around US$1.5 million.
On April 12 2022 a Twitter account popular with the crypto community tweeted about an Ethereum blockchain wallet that had bought “hundreds of thousands of dollars of tokens exclusively featured in the Coinbase Asset Listing post about 24 hours before it was published”. The trading activity referenced in the April 12 tweet was trading previously conducted by Ramani based on tips provided by Wahi.
Coinbase publicly replied on Twitter, stating that it had already begun investigating the matter. A few weeks later, the firm stated in a public blog post that any Coinbase employee who leaked confidential company information would be “immediately terminated” and referred to the relevant authorities, potentially for criminal prosecution.
Wahi was requested by the firm’s director of security operations to attend an in-person meeting on 16 May 2022 at the firm’s Seattle office – but instead, he texted his brother and friend to warn them of the investigation and purchased a one-way flight to India. He was arrested at the airport on the morning of 16 April.
The SEC also launched action against Coinbase itself for securities violations, based on the same case (it considers nine of Coinbase’s listed assets to be categorised as securities).
“We will uphold our mandate by identifying and combating insider trading in securities wherever we see it, whether in shares, options, crypto assets, or other securities,” said Carolyn Welshhans, acting chief of the SEC enforcement division’s recently formed crypto assets and cyber unit. Coinbase in turn has also lodged a petition with the SEC to clarify digital assets regulation, calling on the regulator to “develop a workable regulatory framework for digital asset securities guided by formal procedures and a public notice-and-comment process, rather than through arbitrary enforcement or guidance developed behind closed doors”.
In March, the US Commodities Futures Trading Commission (CFTC) brought a case against rival crypto exchange Binance, claiming that it had been operating illegally – while of course, the high-profile collapse of crypto exchange FTX towards the end of 2022 brought with it an inevitable increase in regulatory scrutiny.
SEC chairman Gary Gensler defended his crypto crackdown in an extended four-hour testimony to Congress last month, telling the House Financial Services Committee that: “All of these companies [crypto platforms and exchanges] should come into compliance with the law, and until they do, we will continue to pursue them as the cop on the beat, and investigate and follow the facts and law.
“We have a clear regulatory framework built up over 90 years… The exchanges are just a bunch of intermediaries in this market that think they have a choice. They don’t have a choice. They’re noncompliant generally, and they need to come into compliance.”
Volatility in the crypto market caused Bitcoin to drop below US$20,000 last year, during a ‘crypto winter’ that saw almost two thirds wiped off the total market value.
©Markets Media Europe 2023
