A former product manager at Coinbase has been arrested, the U.S. Justice Department announced Thursday, after being charged in a cryptocurrency insider trading scheme related to the listing of new crypto tokens on the Coinbase exchange. A separate filing on the case by the SEC signals the beginning of a major battle with crypto firms on what should be designated as a security.
A press release detailed that the former Coinbase employee Ishan Wahi and his brother Nikhil Wahi had both been arrested while their friend Sameer Ramani had been charged but had not been located. Ishan Wahi has been charged with two counts of wire fraud conspiracy and two counts of wire fraud, while Nikhil Wahi and Sameer Ramani were both charged with one count of wire fraud conspiracy and one count of wire fraud.
While the DOJ’s charges do not include any counts of securities fraud, interestingly, in separate charges filed by the SEC, a number of the assets traded by the group are designated as being crypto asset securities, a classification that is surely going to have far-reaching implications for the crypto industry if it sticks.
Specifically, the SEC framed the following assets as securities: Power Ledger’s POWR token, Flexa’s AMP token, Rally’s RLY token, DerivaDEX’s DDX token, XY Labs’ XYO token, Rari Capital’s RGT token, Liechtenstein Cryptoassets Exchange’s LCX token, DFX Finance’s DFX token and Kromatika Finance’s KROM token.
In a 62-page filing, the SEC takes particular aim at the firms and tokens listed, saying that “Nikhil and Ramani traded in securities subject to the federal securities laws because these crypto assets were investment contracts; they were offered and sold to investors who made an investment of money in a common enterprise, with a reasonable expectation of profits to be derived from the efforts of others.”
The SEC more widely classifying crypto assets as securities could be a major threat to the crypto industry, which has gained come of its momentum due to relaxed regulatory guidelines surrounding commodities, which many insiders have argued tokens should be classified as. In response to the SEC’s suit, Coinbase announced that they had filed a petition to develop new frameworks for crypto security rules.
The arrests follow a saga that played out largely on Twitter, where a crypto personality that goes by Cobie discovered a wallet that had been used to buy up a number of cryptocurrencies ahead of the announcement of a Coinbase listing of those assets on its exchange.
https://twitter.com/cobie/status/1550135516594667520?s=20&t=JXsf5prgBGMpm6xf6w3ngA
An investigation from the Justice Department uncovered that Wahi and his associates had traded in advance of at least 14 asset listings at Coinbase, realizing gains of around $1.5 million. The group had purchased cryptocurrencies using accounts registered to other people and had transferred funds “through multiple anonymous Ethereum blockchain wallets,” according to the press release. Apparently, after an investigation into the trades, Coinbase reached out to Ishan Wahi about scheduling a meeting regarding the asset listing process and Wahi attempted to leave the country, but was stopped by law enforcement before boarding.
This arrest follows the June arrest of OpenSea executive Nate Chastain, who was also charged with insider trading related to NFTs.
https://techcrunch.com/2022/06/05/the-arrest-heard-round-the-crypto-world/
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