A former Coinbase (COIN) employee and two other men were arrested and charged in what authorities said was the first insider-trading case tied to cryptocurrency.
The U.S. attorney for the Southern District of New York and the FBI allege that the men used confidential information from Coinbase, a cryptocurrency exchange, about which crypto assets were intended to be listed on its exchange.
Ishan Wahl, a former product manager at Coinbase, his brother Nikhil Wahl, and his friend, Sameer Ramani, were charged in the case.
“Today’s charges are a further reminder that Web3 is not a law-free zone," U.S. Attorney Damian Williams said in a statement. "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."
The crypto and NFT markets have undergone greater scrutiny recently and the valuations of the digital assets have plummeted as bitcoin miners and even electric-vehicle producer Tesla (TSLA) divested bitcoin holdings.
"Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street," Williams said.
The three men are alleged to have made illegal trades in at least 25 different crypto assets and received profit of about $1.5 million, FBI Assistant Director Michael J. Driscoll said.
“Although the allegations in this case relate to transactions made in a crypto exchange -- rather than a more traditional financial market -– they still constitute insider trading," he said. "Today’s action should demonstrate the FBI’s commitment to protecting the integrity of all financial markets – both ‘old’ and ‘new.’”
The indictment was unsealed in Manhattan federal court.
The Allegations
Coinbase added new crypto assets to its exchange and some of these virtual coins saw their market value "significantly increased after Coinbase announced that it would be listing a particular crypto asset," according to the federal government.
Ishan Wahl began working for Coinbase in October 2020 and his job included listing these digital assets. He was also aware of when the crypto assets would be listed, the statement says.
Starting in August 2021 and through May 2022, he was a member of a private Coinbase messaging channel that employees used to discuss the asset listing process.
From June 2021 and through April 2022, on 14 occasions Ishan Wahl "knew in advance both that Coinbase planned to list particular crypto assets and the timing of Coinbase’s public announcements of those asset listings and misappropriated that Coinbase confidential information by tipping either his brother, Nikhil Wahl or Ishan Wahl's friend and associate, Sameer Ramai," the authorities allege.
The three men used anonymous ethereum blockchain wallets to purchase the crypto assets shortly before Coinbase publicly announced the listings.
Both Nikhil Wahl and Ramani used accounts at exchanges held in the names of other people and also transferred funds, crypto assets and the proceeds of their profit through multiple anonymous Ethereum blockchain wallets.
Coinbase said on April 11, 2022, it was planning to potentially list dozens of crypto assets on its exchanges.
Ramani used confidential information from Ishan Wahl to buy at least six of the crypto assets from multiple anonymous ethereum blockchain wallets, the government says.
Ishan Wahl, 32, of Seattle, could receive a maximum total sentence of 80 years on two counts of wire-fraud conspiracy and two counts of wire fraud.
His brother Nikhil Wahl, 26, of Seattle, is charged with one count of wire-fraud conspiracy and one count of wire fraud, each of which carries a maximum sentence of 20 years.
Ramani, 33, of Houston, is charged with one count of wire-fraud conspiracy and one count of wire fraud, each of which carries a maximum sentence of 20 years.
An NFT Insider-Trading Case
A former employee of OpenSea, the NFT marketplace provider, in June was arrested and charged with federal wire fraud and money laundering due to insider trading of NFTs. Each charge carries a maximum sentence of 20 years in prison.
Nathaniel Chastain, a former OpenSea product manager, used confidential information he received to buy dozens of NFTs that he knew would be featured on the platform, the U.S. Attorney's Office for the Southern District of New York statement said. He sold them at a profit, the office charged.
The FBI alleges that he purchased the NFTs before they were listed and sometimes "sold them at profits of two- to five-times his initial purchase price."
A week ago OpenSea said it was paring 20% of its staff.
