The former Coinbase product manager who was charged in the first-ever cryptocurrency insider trading case in the US has been sentenced to two years in prison. Ishan Wahi was found guilty of tipping his brother Nikhil Wahi and their friend Sameer Raman about which tokens are to be listed next on the Coinbase crypto exchange. […]
The post Ex-Coinbase Executive Slapped With Two-Year Prison Sentence on Crypto Asset Insider Trading Charges appeared first on The Daily Hodl.
After the second largest bank failure in history, the U.S. Securities and Exchange Commission (SEC) is reportedly investigating First Republic Bank executives for allegedly engaging in insider trading. Two sources have claimed that the securities regulator is scrutinizing the bank’s executives for making trades using confidential information. Although the sources have not named any specific […]
Prosecutors claimed Nathaniel Chastain profited from inside information as to which NFTs would be featured on the marketplace.
The former OpenSea manager who was accused of insider trading of NFTs has been convicted on May 3 of wire fraud and money laundering in a New York federal court, according to a report from Reuters.
According to prosecutors, Nathaniel Chastain, a former Product Manager at OpenSea, was in charge of choosing which NFTs would be featured on the website’s non-fungible token (NFT) marketplace.
After making these decisions, he frequently purchased these NFTs and then resold them after they had been featured, prosecutors said. He was charged with wire fraud and money laundering on June 1 in connection with these alleged transactions.
The trial began on April 24 and has been watched closely by lawyers specializing in crypto-related issues. Some legal experts have argued that the outcome of the case may affect whether NFTs are considered securities.
According to the May 3 report, defense attorney Daniel Filor argued in the trial’s closing statements that Chastain wasn’t guilty because he had never been told the information was supposed to be confidential, stating “Nobody told Nate that he couldn't use or share that information."
By contrast, prosecuting attorney Allison Nichols argued that Chastain knew he was breaking the law. She claimed that he used anonymous OpenSea accounts to make the trades, implying that he was afraid of being caught.
"He hid what he was doing," Nichols reportedly told the jury in her rebuttal. "He knew that he had violated OpenSea's confidentiality agreement."
Related: Crypto exchanges tackle insider trading after recent convictions
It marks the first time a person has been slapped for using privileged knowledge to trade non-fungible tokens (NFTs).
A former employee of Coinbase, Ishan Wahi, and his brother Nikhil were also charged with insider trading of cryptocurrencies in a separate case in July. In that case, Nikhil Wahi pled guilty on September 12.
One of the perpetrators in the first-ever crypto insider trading case is required to pay digital asset exchange Coinbase in addition to serving jail time. A New York District Court filing signed by Judge Loretta A. Preska on April 6th orders Nikhil Wahi, brother of former Coinbase product manager Ishan Wahi, to pay the exchange […]
The post Man Charged in Coinbase Insider-Trading Scheme To Pay the US Exchange $469,525.50 in Restitution appeared first on The Daily Hodl.
The brother of a former Coinbase employee allegedly profited from an insider trading scheme and now has 20 years to repay the funds.
The brother of a former Coinbase employee has agreed to pay the cryptocurrency exchange nearly $470,000 for his role in an insider trading scheme.
According to a New York District Court filing signed on April 6 and made public on April 10, Nikhil Wahi — brother of former Coinbase product manager Ishan Wahi — will be required to begin making restitution payments while serving time in prison in what is believed to be the first insider trading case involving crypto.
The amount must be paid in full within 20 years of Nikhil’s release from prison and represents the amount Coinbase spent on legal services relating to the Department of Justice’s investigation.
In September 2022 Nikhil pleaded guilty to initiating trades based on confidential information obtained from his brother and is currently serving 10 months in prison for wire fraud conspiracy charges after being sentenced on Jan. 10.
2/ As a result of our investigation we identified 3 suspects and provided this information to law enforcement. One person was a Coinbase employee who we terminated. Today, the DOJ has criminally charged this former employee and the two other individuals for this abusive conduct.
— Brian Armstrong (@brian_armstrong) July 21, 2022
Because of his position at Coinbase, prosecutors alleged Ishan knew when the exchange would be listing new cryptocurrencies and informed his brother Nikhil and an associate of theirs, Sameer Ramani, prior to the asset listings being publicly announced.
The prices of the listed cryptocurrencies generally rose after their listing, netting Nikhil $892,500 in profit, according to prosecutors. As part of his sentencing, Nikhil was required to forfeit these funds to the United States government.
Related: Coinbase head of exchange departs and plans to start new crypto project: Report
In a separate civil case, Coinbase defended the brothers and Ramani after the trio was sued by the Securities and Exchange Commission for violating antifraud provisions of U.S. securities laws.
In a March 13 amicus brief, Coinbase said that it condemns the defendants’ conduct but was supportive of a motion to dismiss the case as it argued the SEC had no jurisdiction to file a lawsuit given the tokens in question do not pass the Howey test — a U.S. legal doctrine that evaluates whether an asset is a security.
Last week I testified to Congress about Coinbase’s futile effort to register with the SEC so we can begin to offer digital asset securities. Today we filed an amicus brief in SEC v. Wahi that explains why this misguided suit only makes things worse. 1/5https://t.co/9iWYrWwpiI
— paulgrewal.eth (@iampaulgrewal) March 14, 2023
The SEC noted in an April 3 filing that it had reached an “agreement in principle” with Ishan to resolve the SEC’s claims and was also in “good faith discussions” with Nikhil.
Hodler's Digest, April 2-8: BTC white paper hidden on macOS, Binance loses AUS license and DOGE news
ARK Invest purchased 269,928 shares in Coinbase on March 23, only two days after it sold $13.5 million, its first sale of Coinbase shares this year.
Cathie Wood’s investment management firm has gone back to buying Coinbase shares again, just a day after COIN’s stock price dipped amid news of its Wells notice.
On March 23, ARK Invest purchased 268,928 Coinbase shares via its ARKK Innovation and ARKW Next Generation Internet exchange-traded funds. The shares wereworth $17.88 million at the time of writing.
Only two days prior, and before the news of the Wells notice broke, ARK Invest sold 160,887 Coinbase shares from its ARK Fintech Innovation ETF. The sale was the first time any of ARK Invest’s ETFs shed Coinbase shares in 2023.
Cathie Wood and Ark Invest's trade activity from today 3/23 pic.twitter.com/yyubxTegZj
— Ark Invest Daily (@ArkkDaily) March 24, 2023
Coinbase’s share price has failed to recover since it shared news it had received a Wells notice warning of possible enforcement action from the Securities and Exchange Commission, which led to COIN shares dropping around 21%.
Shares in Coinbase dipped to a low of $64.27 after trading began on March 23, and at time of writing were trading at $66.87 in after-hours trading, according to Barron’s.
Related: Coinbase CEO on its Wells notice: SEC is like soccer referees in a game of pickleball
Coinbase CEO Brian Armstrong had also sold shares in his firm between March 17 to March 20 — just days prior to the Wells notice and share price dip.
SEC filings indicate, however, that Coinbase executives and insiders all enter into 10B5-1 selling plans months in advance and that this tranche of sales was pursuant to a trading plan adopted on Aug. 16.
While the SEC reached a settlement with crypto exchange Kraken on Feb. 9 after alleging its staking services qualified as securities, Coinbase has repeatedly asserted that its staking products are fundamentally different from Kraken’s and they cannot be universally labeled as securities.
Magazine: Best and worst countries for crypto taxes — Plus crypto tax tips
The Chamber of Digital Commerce has accused the SEC of trying to impose securities regulations via the “back door” of an insider trading lawsuit.
The United States Securities and Exchange Commission has again been accused of overstepping its authority and unfairly labeling crypto assets as securities, this time in its insider trading case against ex-Coinbase employees.
In an amicus brief filing on Feb. 22, the U.S.-based Chamber of Digital Commerce argued the case should be dismissed as it represented an expansion of the SEC’s “regulation by enforcement” campaign and seeks to characterize secondary market transactions as securities transactions.
We have serious concerns about the SEC’s attempt to label these tokens as securities in the context of an enforcement action against third parties who had nothing to do with creating, distributing or marketing those assets. This is not a healthy policymaking process. Dismiss! https://t.co/06WAJ65Ckl
— Perianne (@PerianneDC) February 22, 2023
“This case represents a stealthy, yet dramatic and unprecedented effort to expand the SEC’s jurisdictional reach and threatens the health of the U.S. marketplace for digital assets,” wrote Perianne Boring, founder and CEO of the Chamber of Digital Commerce.
The Chamber highlighted the “SEC’s encroachment into the digital assets market” was never authorized by Congress, and noted in other Supreme Court cases it has been ruled that regulators must first be granted authority by Congress.
“By acting without Congressional authorization, [the SEC] continues to contribute to a chaotic regulatory environment, harming the very investors it is charged to protect,” it wrote on Twitter.
The Chamber also argued that in bringing claims of securities fraud, the SEC was essentially asking the court to uphold that secondary market trades in the nine digital assets mentioned in an insider trading case against a former Coinbase employee constitute securities transactions, which it suggested was “problematic.”
This novel attempt by @SECGov to impose securities regulations via the “back door” of an insider trading action raises serious due process concerns & will result in an array of consequences that will harm investors and threaten digital assets. Thus, it should be dismissed!
— Chamber of Digital Commerce (@DigitalChamber) February 22, 2023
“We have serious concerns about [the SEC’s] attempt to label these tokens as securities in the context of an enforcement action against third parties who had nothing to do with creating, distributing or marketing those assets,” Perianne added.
The Chamber cited the LBRY v SEC case in its brief, in which the judge had ruled that secondary market transactions would not be designated as securities transactions.
The judge had been persuaded by a paper from commercial contract attorney Lewis Cohen, which pointed out that no court had ever acknowledged the underlying asset was a security at any point since the landmark SEC v W. J. Howey Co. ruling — a case which set the precedent for determining whether a security transaction exists.
The latest amicus brief follows a similar filing from advocacy group the Blockchain Association on Feb. 13, which also argued that the SEC had exceeded its authority in the case and claimed it was “the latest salvo in the SEC’s apparent ongoing strategy of regulation by enforcement in the digital assets space.”
Related: Gary Gensler’s SEC is playing a game, but not the one you think
An amicus brief is filed by an amicus curiae, or “friend of the court,” which is an individual or organization not involved with a case but can assist the court by offering relevant information or insight.
The SEC in July sued former Coinbase Global product manager Ishan Wahi, brother Nikhil Wahi, and associate Sameer Ramani, alleging that the trio had used confidential information obtained by Ishan to make $1.5 million in gains from trading 25 different cryptocurrencies.
Another member of Sam Bankman-Fried’s inner circle allegedly plans to plead guilty to criminal charges for his role in the alleged fraud that occurred at the cryptocurrency exchange FTX. According to unnamed sources familiar with the matter, Nishad Singh, FTX’s former director of engineering, is attempting to negotiate a deal with New York prosecutors. Sources […]
The first-ever case of crypto insider trading highlights the need for reforms from exchanges to keep track of their employee’s trade activities.
In January, the brother of a former Coinbase product manager was sentenced to 10 months in prison for wire fraud conspiracy in what prosecutors called the first case of insider trading involving cryptocurrencies. In September 2022, Nikhil Wahi entered a guilty plea for executing trades based on private data obtained from his brother, Ishan Wahi, a former product manager for Coinbase.
Most countries have laws against insider trading, which carry stiff penalties like jail time and heavy fines. The recent insider trading investigation against crypto exchanges by the United States Securities and Exchange Commission indicates that regulatory bodies are prepared to stop financial misconduct in crypto marketplaces.
Without clear regulation, many have questioned whether other exchanges and platforms have similar rogue employees participating in illegal trades.
Prosecutors raised a similar case against an OpenSea executive in a lawsuit filed in October 2022, with concerns growing in the wake of the FTX collapse and the alleged misconduct of its executives.
Binance listings-related token dumps became a hot topic weeks after the first insider trading conviction. Conor Grogan, a director of Coinbase, used Twitter to draw attention to the recent transaction activities of a few anonymous wallets. The unidentified wallets allegedly purchased several unlisted tokens minutes before Binance announced their listing and sold them as soon as the announcement was made public.
These wallets have made hundreds of thousands of dollars off price spikes in new tokens listed on Binance. The trade’s accuracy suggests that the wallet owners have access to intimate knowledge about these listings. According to Grogan, this could potentially be the work of a “rogue employee related to the listings team who would have information on fresh asset announcements or a trader who discovered some sort of API or staging/test trade exchange leak.”
Binance recently announced a 90-day token sale policy for employees and family members to fight insider trading. The policy prohibits the sale of any newly listed token on the exchange within the mentioned time frame. A spokesperson for the crypto exchange told Cointelegraph that it has a zero-tolerance policy for any employees using insider information for profit and adheres to a strict ethical code related to any behavior that could harm customers or the industry.
“At Binance, we have the industry’s leading cybersecurity and digital investigations team composed of more than 120 former law enforcement agents and security and intelligence experts who investigate both external and internal wrongful behavior. There is a long-standing process in place, including internal systems, that our security team follows to investigate and hold those accountable who have engaged in this type of behavior,” the spokesperson said.
The blockchain is a public, immutable database that stores all transaction histories for cryptocurrencies. While digital wallets conceal traders’ real identities, the blockchains’ openness and transparency enable researchers to access precise transaction data to examine crime and misbehavior.
Ruadhan O, the lead developer at token system Seasonal Tokens, told Cointelegraph that insider trading in crypto doesn’t happen in the same way it happens in the stock market. In the case of stocks, insiders are those with non-public knowledge of upcoming news about the company that will affect its performance.
Recent: Tax strategies allow crypto investors to offset losses
He added that these people are company employees, legislators and policymakers. In the case of cryptocurrencies, the people running the exchanges have the opportunity to front-run large trades and manipulate the market. In both cases, insider trading defrauds honest investors in a way that’s very difficult to detect. He explained how exchanges could work with existing policies to ensure fair price discovery:
“The United States could enforce strict regulations requiring incoming cryptocurrency orders to be processed by a public order-matching system, which would prevent front-running. This would help to create a safe system for cryptocurrency investors within the U.S., but it would also drive most cryptocurrency trading offshore. Fully stopping insider trading at the largest exchanges would require international coordination, and competing governments are unlikely to agree on measures that would harm their domestic economies.”
According to a study by Columbia Law School, a group of four linked wallets frequently bought cryptocurrency hours before formal listing announcements, which resulted in gains of $1.5 million. Before the formal listing announcement, the identified wallets bought the impacted tokens and stopped trading as soon as they sold their positions. The study found these digital wallets’ trade history to be precise, suggesting the owners had access to private information about cryptocurrencies scheduled for listing on exchanges.
The study found that 10–25% of the cryptocurrencies listed in the sample involved insider trading on listing announcements.
According to the study, cryptocurrency markets have a severe insider trading problem that is worse than traditional stock markets. Statistical data also demonstrates notable anomalous returns and run-up patterns before listing announcements. These trading patterns are comparable to those documented in insider trading cases in a stock market.
Jeremy Epstein, chief marketing officer at layer-1 protocol Radix, told Cointelegraph that a crypto exchange is no different than a traditional financial services company that deals in markets and should be regulated similarly. He explained:
“What this latest scandal highlights, again, is how superior a decentralized financial system, with transparency to all, will be for consumers and market participants who will need to worry far less about being fleeced by insiders. Insider trading won’t go away, but it will be easier and faster to spot, thus saving millions of dollars for the victims.”
Insider trading is a well-known phenomenon in traditional financial markets where someone carries out illegal trading to their advantage through access to confidential information. The insider trading frenzy in traditional markets is not often limited to former employees of a particular exchange. Many sitting politicians and policymakers have been found to be involved in such acts. According to a New York Times study, at least 97 current members of Congress made purchases or sales of stocks, bonds, or other financial assets related to their employment as lawmakers or disclosed similar activities taken by their spouses or dependent children.
Another prominent case was the 2020 congressional insider trading scandal, in which senators broke the STOCK Act by selling stocks at the start of the COVID-19 epidemic using information obtained from a private Senate meeting. On March 30, 2020, the Department of Justice opened an investigation into the stock transactions. All inquiries are now closed, and no one was ever charged.
This high-profile case of insider trading in traditional markets highlights that, despite all the measures and regulations in place, the same policymakers tasked with safeguarding investors’ interests were allegedly involved in the same activities.
Regulations alone cannot fix some of the inherent critical issues. Paolo Ardoino, the chief technical officer at Bitfinex, believes crypto shouldn’t be targeted for it.
Recent: Bitcoin’s big month: Did US institutions prevail over Asian retail traders?
Ardoino told Cointelegraph that there would be opportunities for abuse in a young industry such as crypto until there are clear rules and guidelines to protect against such abuse. He said that there must be safeguards against asymmetric information flow so that there is true price discovery. He explained:
“I believe that crypto exchanges and policymakers should work together to create a regulatory framework that will allow the industry to thrive while protecting all participants against market abuses. As a cryptocurrency exchange which is at the forefront of technological innovation in terms of digital token trading, Bitfinex’s primary aim has always been to provide an environment that is safe for traders and transparent. We will continue with that ethos.”
With calls for regulations growing after the FTX collapse, crypto exchanges are taking extra precautions to track and ensure fair trading and better protect their customers.
The attorneys for brothers Ishan and Nikhil Wahi want the case thrown out, arguing that the Securities and Exchange Commission was wrong when it charged the pair.
A former product manager at cryptocurrency exchange Coinbase has moved to dismiss charges of alleged insider trading, with his lawyers arguing the tokens he allegedly traded were not securities.
Lawyers representing ex-Coinbase employee, Ishan Wahi, and his brother, Nikhil Wahi, filed a motion on Feb. 6 in the United States District Court for the Western District of Washington to dismiss charges laid by the Securities and Exchange Commission.
The SEC charged the brothers and their associate, Sameer Ramani, with insider trading last July, alleging the trio made $1.1 million using Ishan’s tips on the timing and names of tokens in upcoming Coinbase listings.
In an over 80 page document, the lawyers outlined how the SEC was “wrong” in its charges.
They argued the cryptocurrencies allegedly traded by the Wahi’s did not fit the legal definition of a security, as they had no “investment contract [...] Written or implied,” comparing them instead to baseball trading cards and beanie babies.
They argued that token developers have “no obligations whatsoever” to buyers on the secondary markets, adding:
“With zero contractual relationship, there cannot be an ‘investment contract.’ It is that simple.”
The tokens, the lawyers argued, were also all utility tokens. They emphasized the tokens’ primary use is on a platform rather than as investment products.
“None of the tokens were like stock [...] The very object of each token was to facilitate activity on the underlying platforms and, in so doing, enable each network to develop and grow.”
The Wahi brothers and Ramani purportedly purchased at least 25 cryptocurrencies before the Coinbase listings — of which at least nine the SEC asserts are securities — before selling them for a profit shortly after their listing.
The Wahi’s lawyers lambasted the SEC for its apparent attempt at “trying to seize broad regulatory jurisdiction over a massive new industry via an enforcement action.”
They said that the regulator “lacks clear congressional authorization to deem the tokens at issue to be ‘securities,’” adding:
“If the SEC really believes digital assets are securities, it should engage in a rulemaking or other public proceeding explicating that view and providing guidance to regulated parties on its implications.”
Commodity Futures Trading Commission Commissioner Caroline Pham has previously expressed concern at the possible “broad implications” of the case.
Related: Did dYdX violate the law by changing its tokenomics?
She said the SEC’s actions don’t address the question of whether some cryptocurrencies are securities through a “transparent” process that develops “appropriate policy with expert input.”
The Wahi brothers and Ramani also faced charges from the U.S. Attorney’s Office for the Southern District of New York relating to wire fraud and wire fraud conspiracy.
Ishan Wahi and his legal team at Jones Day filed a strong motion to dismiss in the SEC's enforcement action regarding alleged insider trading of 9 tokens. https://t.co/s4WZuZThAp pic.twitter.com/kFJjYvdyJc
— Marisa Tashman Coppel (@mtcoppel) February 7, 2023
Nikhil pleaded guilty to the charges and was sentenced to 10 months in prison for wire fraud conspiracy in January. Ishan pleaded not guilty to the charges in August. Ramani seemingly remains at large.
The motion was signed by 10 attorneys from five separate law firms.
If the motion to dismiss is denied by District Judge Tana Lin, the case will continue.
