Coinbase Insider Trading Case Closed: Former Manager And Brother Settle Charges With SEC

The Securities and Exchange Commission (SEC) has announced that former Coinbase product manager Ishan Wahi and his brother, Nikhil Wahi, have settled insider trading charges. The SEC alleged that Ishan Wahi helped coordinate Coinbase’s public listing announcements, which included information about the crypto assets that would be available for trading.

Despite being warned not to trade based on this confidential information, Ishan repeatedly tipped off his brother and a friend, Sameer Ramani, about the timing and content of upcoming listing announcements. Ahead of these announcements, Nikhil Wahi and Ramani allegedly purchased at least 25 crypto assets, nine of which were securities, and sold them shortly after the announcements for a profit.

Former Coinbase Manager Agree To Settle

According to the SEC’s announcement, as part of the settlement, both Ishan and Nikhil have agreed to be permanently enjoined from violating the Securities Exchange Act and Rule. They will pay disgorgement of ill-gotten gains plus prejudgment interest. Moreover, The SEC has determined not to seek civil penalties in light of the Wahi brothers’ prison sentences. 

In addition to the SEC’s charges, Ishan and Nikhil have pled guilty to conspiracy to commit wire fraud in a criminal action. Ishan has been sentenced to 24 months in prison and ordered to forfeit 10.97 ether and 9,440 Tether, while Nikhil has been sentenced to 10 months and ordered to forfeit $892,500.

Furthermore, in a statement, The SEC’s enforcement director Gurbir S. Grewal, emphasized that the federal securities laws do not exempt crypto asset securities from the prohibition against insider trading. He also expressed gratitude to the SEC staff for successfully resolving the matter:

While the technologies at issue in this case may be new, the conduct is not. We allege that Ishan and Nikhil Wahi, respectively, tipped and traded securities based on material nonpublic information, and that’s insider trading, pure and simple

Coinbase Takes Legal Action Against SEC

Coinbase has filed a mandamus petition in federal court seeking to compel the Securities and Exchange Commission to engage in rulemaking regarding digital assets. The petition alleges that the SEC has unreasonably delayed responding to Coinbase’s rulemaking petition and has decided not to engage in the process requested by Coinbase.

The SEC has not denied that its delay in responding to Coinbase’s petition would be unreasonable and that mandamus would be warranted if the agency has determined not to engage in the rulemaking process. However, the SEC contends it is still actively considering its regulatory approaches.

Furthermore, Coinbase argues that the SEC has no intention of engaging in the rulemaking Coinbase requested, as evidenced by public statements made by SEC Chair Gary Gensler. Coinbase’s position is that the Chair’s repeated, unequivocal statements about the Commission’s rulemaking plans conclusively demonstrate that the SEC has no intention of engaging in the rulemaking Coinbase requested.

The SEC has faced criticism for its lack of clarity and communication regarding regulations in the cryptocurrency industry. In this case, Coinbase argues that the SEC’s failure to promulgate rules that would enable the industry to know the SEC’s standards for determining whether digital assets may be securities or provide a workable path to register when required has put the industry in a “Catch-22”. 

Featured image from Unsplash, chart from TradingView.com