Former Coinbase Project manager, Ishan Wahi, was detained by the US Securities and Exchange Commission (SEC) and prosecutors in the Southern District of New York due to allegations that he gave confidential information on token listings on Coinbase to his brother, Nikhil Wahi, and his friend, Sameer Ramini.
When he advised his associates to make purchases for the tokens, Wahi allegedly provided illegal financial advice in addition to disclosing insider information. According to authorities, by doing this Wahi violated SEC’s anti-fraud rules.
Additionally, both Wahi’s brother and his friend are subject to the regulator’s investigation given they ostensibly utilized the illicit financial advice to trade cryptocurrencies from June 2021 to April 2022. Nikhil Wahi who is 26 years old and Ramani who is 33 years used anonymous Ethereum blockchain wallets to acquire the assets before Coinbase’s announcements and then sold those assets for a profit of at least $1.5m (£1.25m), prosecutors claimed.
Damian Williams, the US attorney for the southern district of New York mentioned that Web3, the catch-all term for the latest iteration of the internet, is not immune from the authorities.
He said, “Today’s charges are a further reminder that Web3 is not a law-free zone. Just last month, I announced the first-ever insider trading case involving NFTs, and today I announce the first-ever insider trading case involving cryptocurrency markets. Our message with these charges is clear: fraud is a fraud, whether it occurs on the blockchain or on Wall Street.”
Howard Fischer, a partner at New York law firm Moses & Singer said the individuals had been charged with wire fraud, which refers to fraud committed on any kind of electronic device because crypto assets are not technically defined as securities that are tradable financial assets such as shares or bonds.
Historically, this has enabled crypto assets to swerve regulation by the SEC and the US treasury department which has both enhanced the appeal of crypto assets while also making them more susceptible to fraud due to a lack of investor protections.
Coinbase’s CEO, Brian Armstrong, said that the SEC’s decision to file securities fraud charges against the three men was an unfortunate distraction. Armstrong added that Coinbase had flagged concerns about the three individuals to the Department of Justice.
“Coinbase takes allegations of improper use of company information very seriously, as demonstrated by our rapid investigation of this matter. Again, we have zero tolerance for this kind of misconduct and will not hesitate to take action against any employee when we find wrongdoing,” Armstrong said.