Former US Coinbase employee and two others charged with insider trading | cryptocurrency

A former Coinbase employee and two others have been charged with what federal authorities have described as the US government’s first cryptocurrency insider trading case.

Cryptocurrency exchange product manager Ishaan Wahi and his brother Nikhil Wahi were arrested in Seattle on Thursday. He and a third defendant, his friend Samir Ramani, who remain at large, also face civil charges from the Securities and Exchange Commission (SEC), the US financial watchdog.

Prosecutors allege that 32-year-old Ishaan Wahi shared confidential information about upcoming announcements of new crypto assets that Coinbase is planning or considering listing on its exchange. Prosecutors said his brother and Ramani allegedly traded at least 14 times before making such announcements between June 2021 and April 2022.

Prosecutors claimed that Nikhil Wahi, 26, and Ramani, 33, used anonymous Ethereum blockchain wallets to acquire assets prior to Coinbase’s announcements and then sold those assets for at least $1.5m (£1.25m). sold for profit.

US Attorney Damian Williams for the Southern District of New York said Web3 — the catch-all term for the latest iteration of the Internet — was not immune from authorities. Last month he brought an insider trading case against a former employee of OpenC, the largest market for non-fungible tokens (NFTs).

“Today’s allegations are another reminder that Web3 is not a law-free zone,” Williams said. “Just last month, I announced the first insider trading case involving the NFT, and today I announce the first insider trading case involving the cryptocurrency markets. Our message with these allegations is clear: fraud is fraud, fraud, regardless Be it on the blockchain or on Wall Street.”

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Howard Fischer, a partner at the New York law firm Moses & Singer, said the individuals were accused of wire fraud — which refers to fraud committed on any kind of electronic device — because crypto assets could technically be treated as securities. that are tradable financial assets such as shares or bonds.

Historically, this has enabled crypto assets to undergo regulation by the SEC and the US Treasury Department, which has increased the appeal of crypto assets, while making them more vulnerable to fraud due to their lack of investor protection.

“This is not an insider trading case because there is no such thing as insider trading for a non-security like crypto asset, so prosecutors have had to use wire fraud,” Fisher said.

In a blogpost, Coinbase CEO Brian Armstrong said the SEC’s decision to file securities fraud charges against the three men was an “unfortunate distraction.” Armstrong said that Coinbase had expressed concerns about the three individuals to the Justice Department.

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“Coinbase takes allegations of improper use of company information very seriously, as evidenced by our rapid investigation into this matter. Again, we have zero tolerance for this type of misconduct and against any employee.” Will not hesitate to take action when we find the wrongdoing,” Armstrong said.

Fisher said the SEC is unlikely to be able to set a precedent on cryptocurrencies and securities with its citizen fee.

“While the SEC has also filed a case alleging that the assets involved are securities, as that prosecution is likely to remain pending resolution of the criminal case, the issue is unlikely to be decided.”

Ishaan Wahi’s lawyer Andrew Saint Laurent declined to comment. Nikhil Wahi’s lawyer did not immediately respond to requests for comment. Reuters could not immediately identify Ramani’s lawyer.

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