The U.S. Department of Justice charged a former product manager at Coinbase (COIN) with insider trading in an indictment unsealed on Thursday.
The DoJ noted this is the first insider trading case the Department has brought related to activities in cryptocurrency markets.
The former employee, Ishan Wahi, and two accomplices, Nikhil Wahi and Sameer Ramani, allegedly made illegal trades involving at least 25 different crypto assets, realizing gains totaling approximately $1.5 million, according to the DoJ.
"Today’s charges are a further reminder that Web3 is not a law-free zone," Damian Williams, a U.S. Attorney for the Southern District of New York, stated in the release.
"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," Williams added. "Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street."
The charges follow a similar case filed in June, in which the DoJ alleged an employee at NFT marketplace OpenSea profited from his role selecting which non-fungible tokens, or NFTs, would be promoted on the front web page of OpenSea.
In a parallel action, the SEC announced charges against all three named defendants in the DoJ's action, alleging the violation of antifraud provisions of securities laws and accusing the group of realizing profits totaling more than $1.1 million.
When reached for comment, a Coinbase spokesperson pointed to an updated Medium post and Twitter posts detailing some the events surrounding the case, adding: "We have zero tolerance for this kind of misconduct and will not hesitate to take action against any employee when we find wrongdoing."
The company called the SEC charges an "unfortunate distraction," stating that "no assets listed on our platform are securities."
The DoJ's complaint alleges Ishan Wahi made Nikhil Wahi, his brother, and Ramani aware of pending token listings ahead their launch on Coinbase on at least 14 occasions. After delivering the information, all three allegedly used anonymous Ethereum wallets to buy the crypto assets before the listing and sell them for a profit afterwards.
Some of those coins included TRIBE, XYO, ENS, and GALA.
The DoJ indictment cites an April 12 tweet by crypto influencer Cobie, which linked an Ethereum wallet “that bought hundreds of thousands of dollars of tokens exclusively featured in the Coinbase Asset Listing post about 24 hours before it was published.”
Found an ETH address that bought hundreds of thousands of dollars of tokens exclusively featured in the Coinbase Asset Listing post about 24 hours before it was published, rofl pic.twitter.com/5QlVTjl0Jp
— Cobie (@cobie) April 12, 2022
The following day, Coinbase's chief security officer responded over Twitter, publicly noting the company had begun an investigation on the matter.
As part of Coinbase's investigation in early May, its director of security sought an in-person meeting with Wahi about Coinbase's asset listing process, according to the DoJ.
On the day of his meeting, Wahi set out to board a one-way flight to India, cancelled the meeting, and alerted his co-conspirators of the investigation. Before boarding his flight he was stopped by law enforcement, according to the DoJ.
Ishan Wahi faces two counts of wire fraud conspiracy and two founds of wire fraud, which each carry a maximum sentence of 20 years. Nikhil Wahi and Ramani each face one count of wire fraud and another for wire fraud conspiracy, which carry maximum sentences of 20 years each.
On March 7, Wahi authored a Medium post for Coinbase outlining how the exchange planned to increase transparency and information sharing around its token listing process.
"At Coinbase, your trust is our top priority," Wahi wrote in the post, adding: "We’re aiming to add even more assets and expand our coverage around the globe in the coming months, so stay tuned for more updates."
This story has been updated to include comments from Coinbase.
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