US authorities have charged on July 21 two Indian brothers and their Indian-American friend in the first global case of cryptocurrency insider trading that enabled them to make $1.5 million in ill-gotten gains.
Ishan Wahi, Nikhil Wahi and their friend Sameer Ramani were charged with wire fraud conspiracy and wire fraud in connection with the scheme to commit insider trading in cryptocurrency assets. Each charge carries a maximum sentence of 20 years.
Ishan, 32, charged with two counts of wire fraud conspiracy and two counts of wire fraud, worked as a product manager at Coinbase Global at the time of fraud, US prosecutors said July 21.
Coinbase is one of the largest crypto asset trading platforms in the US, with more than 98 million registered users. Since May 2020, the platform would publicly announce plans to list certain crypto assets on its blog or Twitter feed.
“The prices of crypto assets identified in these listing announcements, including crypto asset securities, typically appreciate quickly and significantly,” the US Securities and Exchange Commission said in its litigation filing, accessed by Moneycontrol.
Ishan worked with Coinbase from October 2020 till late May 2022 as a manager in the trading platform’s assets and investing products group. Being privy to and directly involved with the crypto asset listing information, he tipped his brother and Ramani ahead of the announcements, sometimes just a few minutes before, between June 2021 and April 2022.
More than 10 such announcements were leaked with information on trading in at least 25 crypto assets.
Ishan and Ramani, 33, had attended the University of Texas in Austin at the same time and had known each other since 2013. They exchanged phone calls and text messages in 2021 and 2022 and followed each other on social media. Ramani, a resident of Houston and a US citizen, is said to be currently in India.
Nikhil Wahi, 26, has been employed with Salesforce Inc. since 2017 and works there as a senior product manager. He has refused to respond to an SEC subpoena for documents.
According to the filing, both brothers live in Seattle and have a history of financial transactions with each other, including, on February 11, 2021, Nikhil deposited a $20,000 cheque from Ishan, purportedly a loan. On March 1, 2021, Nikhil transferred $2,000 to Ishan. On April 17, 2022, Nikhil transferred crypto assets valued at $19,500 from his Coinbase account to Ishan’s Coinbase account.
Ishan, Nikhil and Ramani had deleted their Twitter and LinkedIn accounts when Moneycontrol checked.
“Nikhil and Ramani, who knew, consciously avoided knowing, or were reckless in not knowing that Ishan was providing this material, non-public information in breach of his duty to Coinbase and for a personal benefit, repeatedly traded using that information, reaping substantial profits,” the filing noted.
According to the filing, the defendants took steps to conceal their communications and trading, including by utilising multiple accounts, wallets, and addresses across multiple platforms, including foreign trading platforms, in carrying out their trading in advance of Coinbase’s listing announcements.
Tokens that were traded
It started with the listing of the Ethereum-based AMP token on June 8, 2021.
Ishan got to know about the listing by June 6. Between the two days, a blockchain address linked to Ramani made several fund transfers buying 700,000 AMP tokens at about $30,650. On the morning of June 8, Ramani had bought another 1,165,000 AMP tokens for about $49,000 from a second blockchain address.
On the day of listing, AMP’s price was up by 11 percent and its trading volumes more than tripled.
On June 10 and 11, “the two Ramani AMP trading addresses sold nearly all of the AMP tokens they had purchased for Ethereum tokens valued at approximately $97,600, representing profits of approximately $17,950.”
A similar method was used again in less than a week on June 14, when RLY was released on Coinbase and Nikhil’s blockchain addresses were used.
The trio went on to do similar trades with crypto tokens DDX, XYO, and RGT, among several others, over an almost 10-month period.
Coinbase condemns litigation by SEC
Amidst regulatory uncertainties surrounding cryptocurrency and digital assets, Coinbase’s Chief Legal Officer Paul Grewal questioned SEC’s move in a blog post on July 21.
“Seven of the nine assets included in the SEC’s charges are listed on Coinbase’s platform. None of these assets are securities. Coinbase has a rigorous process to analyze and review each digital asset before making it available on our exchange — a process that the SEC itself has reviewed. This process includes an analysis of whether the asset could be considered to be a security, and also considers regulatory compliance and information security aspects of the asset. To be explicit, the majority of assets that we review are not ultimately listed on Coinbase,” Grewal wrote.
Coinbase added that despite cooperating with the SEC on the investigation, the federal agency instead of having a dialogue with the platform about the seven assets jumped to litigation.
Grewal said, “The SEC’s charges put a spotlight on an important problem: the US doesn’t have a clear or workable regulatory framework for digital asset securities. And instead of crafting tailored rules in an inclusive and transparent way, the SEC is relying on these types of one-off enforcement actions to try to bring all digital assets into its jurisdiction, even those assets that are not securities.”
“Just this morning (and with no prior knowledge of the timing of the charges discussed), Coinbase filed a petition for rule making with the SEC calling for actual rule making so the crypto securities market has a chance to develop,” he added.
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