Jul 21, 2022 - Economy & Business

DOJ charges 3 on insider trading ahead of Coinbase listings

Illustration of a spotlight shaped like a police badge.
Illustration: Maura Losch/Axios

The Department of Justice announced charges against three people on Thursday accused of trading on privileged information about which tokens Coinbase would list on its cryptocurrency exchange.

  • "Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street," U.S. Attorney Damian Williams said.

Why it matters: Coinbase is the dominant exchange in the U.S., which is the dominant market for cryptocurrency in the world. A listing on Coinbase has provided a guaranteed boost in the price of any cryptocurrency or token, so knowledge about which cryptocurrencies it would add was extremely privileged.

  • The complaint was made in collaboration with the U.S. Securities and Exchange Commission (SEC), which released a corresponding announcement Thursday.

What they're saying: "In nearly a year, the defendants collectively earned over $1.1 million in illegal profits by engaging in an alleged insider trading scheme that repeatedly used material, nonpublic information to trade ahead of Coinbase listing announcements," Carolyn Welshhans, of the SEC's cyber unit, said in a release.

Details: Ishan Wahi, 32, of Seattle, served as a product manager at Coinbase, assigned to the asset listing team. As such, he had access to internal deliberations about which tokens would be listed on the exchange.

  • According to the announcement, he collaborated with his brother, Nikhil Wahi, 26, also of Seattle, and an associate, Sameer Ramani, 33, of Houston, to make purchases of tokens ahead of the announced listings in order to sell them at a profit.
  • The Wahis were arrested Thursday morning in Seattle. Ramani, who has also been charged, remains at large.
  • Ishan Wahi was charged with two counts of wire fraud conspiracy and two counts of wire fraud. His brother and Ramani were charged with one count each.
  • According to the announcement, Ishan Wahi attempted to flee the country when Coinbase asked him to come in for an interview in May, but he was detained by law enforcement.
  • The indictment details trades on several tokens, including TRIBE, XYO, ENS and POWR.

The indictment credits a Twitter user with detecting the purchases. Without citing the specific users, it provides an extensive quote, which appears to be this tweet from "Cobie" (formerly known as "Crypto Cobain," real name Jordan Fish).

Screenshot from @Cobie on Twitter
Screenshot: @cobie (Twitter)

Between the lines: The SEC appears to be using this indictment to make a case that several of the tokens in question are securities and therefore under their jurisdiction. Its announcement noted that those accused had "allegedly purchased at least 25 crypto assets, at least nine of which were securities."

Zooming out: The case here is basically the same as the one against former OpenSea employee Nate Chastain, who was arrested in early June.

  • In both cases, employees traded on privileged knowledge of a major platform driving a fresh level of attention to a particular asset.

The bottom line: "We are not concerned with labels, but rather the economic realities of an offering," Gurbir Grewal, director of the SEC’s Division of Enforcement, said in a statement.

Go deeper