Author: Syedur Rahman
22 July 2022
2 min read
In the first case of its kind, a former Coinbase manager and two others have been charged by the United States’ Securities and Exchange Commission (SEC) with wire fraud conspiracy and wire fraud in connection with a scheme to commit insider trading in cryptocurrency assets.
The three defendants are alleged to have made illegal trades in at least 25 different crypto assets and made profits of $1.5 million as a result. The ex-Coinbase manager allegedly used confidential Coinbase information regarding which crypto assets were due to be listed on the Coinbase exchange.
The charges are a stark reminder of the increased efforts to regulate and police Web3, with June seeing a former product manager at Opensea being charged with insider trading of NFTs– the first case of its kind involving digital assets.
Coinbase is one of the largest cryptocurrency exchanges in the world, allowing users to buy, sell and trade cryptocurrency through online accounts. In October 2020, Ishan Wahi the now ex-manager at Coinbase, was assigned to the Coinbase asset listings team. The position made him privy to highly confidential information, with advanced knowledge of which crypto assets Coinbase intended to list; including when the public announcements of the listings would be made. A private messaging channel was used by a small number of employees to discuss the launch dates and timelines that Coinbase did not wish other employees to have knowledge of.
It is alleged that on at least 14 separate occasions, Wahi used his inside knowledge of when particular cryptoassets would be listed on the Coinbase exchange and the timing of the public announcements. He shared this confidential information with his co-defendants (who are his brother and his friend) so they could trade in those assets before the value of them soared after the announcement that Coinbase would be listing them. Following the public announcements, the co-defendants sold at least 25 different cryptoassets, making gains totalling $1.5million.
In order to try to conceal their scheme, the co-defendants created alias accounts and transferred the funds and assets through multiple anonymous Ethereum blockchain wallets. They are also alleged to have created new Ethereum blockchain wallets (without any prior transactions) in an attempt to further try to conceal their actions.
On 11 April 2022, Coinbase announced its intention to list a number of new cryptoassets to the exchange. Multiple anonymous wallets created and used by Wahi’s co-defendant friend were identified by a well-known Twitter account to have already purchased at least six of the announced assets in the 24 hours prior to the announcement. Coinbase was alerted and said it had already commenced investigations into the transactions.
The SEC’s investigation, which remains ongoing, demonstrates the commitment to tackling fraudulent activities such as insider trading schemes and others that intend to violate the anti-fraud provisions of securities laws. The SEC will look to obtain permanent injunctive relief, disgorgement with prejudgment interest and civil penalties against those found to be involved in such activities. Parallel to the SEC’s filed complaint, the US Attorney’s Office published criminal charges against all three involved.
Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, civil recovery, cryptocurrency and high-stakes commercial disputes.