The U.S. Department of Justice has charged a former Coinbase manager and two co-conspirators with wire fraud conspiracy and scheme to commit insider trading in cryptocurrency assets.
This is the first case of its kind in litigation history and a signal that those performing cryptocurrency and NFT fraud will be targeted by law enforcement.
Coinbase is an American cryptocurrency exchange platform with almost 90 million registered users and a revenue of $7.84 billion (2021).
Defendant Ishan Wahi, who worked as a product manager for the company, is accused of abusing his position and insider knowledge to make cryptocurrency investments that were almost guaranteed to rise in price.
“Although the allegations in this case relate to transactions made in a crypto exchange – rather than a more traditional financial market – they still constitute insider trading,” commented FBI’s Assistant Director, Michael J. Driscoll.
“As alleged, the defendants made illegal trades in at least 25 different crypto assets and realized ill-gotten gains totaling approximately $1.5 million.”
The other two defendants charged in the indictment are Nikhil Wahi and Sameer Ramani, who aided Ishan Wahi by carrying out the required trades.
“Oracle” investments
Coinbase periodically adds new crypto assets on its platform to provide its users with fresh investment opportunities.
The value of these coins and tokens typically increases when a large platform like Coinbase makes them available for purchase, so those investing in them before the event are set to make a profit.
Ishan Wahi knew when Coinbase was planning to add new cryptocurrency assets before the company announced it publicly, so he coordinated with his co-conspirators to purchase large amounts in advance.
The trio purchased 25 crypto assets based on insider info from 14 new asset listing announcements disclosed from Coinbase to Ishan Wahi under strict confidentiality terms.
Some of the trades and their gains related to this insider trading scheme are:
TRIBE coin – A profit of $7,000
XYO coin – A profit of ~$900,000
ALCX, GALA, ENS, and POWR coins – A profit of $13,000 collectively
Various other unnamed assets – A profit $195,000
Nikhil Wahi and Sameer Ramani, who performed the transactions, took several measures to conceal links to insider info and obscure the money trace.
The indictment mentions numerous transfers on a wide range of crypto accounts, passing assets through anonymous Ethereum blockchain wallets and even accounts held in other people’s names.
This lasted from October 2020 until April 2022, when a massive and suspiciously well-timed purchase by Ramani was exposed on Twitter, triggering an investigation within Coinbase.
Soon afterward, the clues led to Ishan Wahi, who attempted to flee the country but was stopped by law enforcement at the airport.
“Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street. And the Southern District of New York will continue to be relentless in bringing fraudsters to justice, wherever we may find them,” warned U.S. Attorney Damian Williams.
All three defendants now face charges that could incur up to 20 years of imprisonment, which is to be decided in the U.S. District Court of the Southern District of New York.
