US Blames Ex-Coinbase Executives In First Crypto Insider Trade Case, Regulatory Turf War Likely – JD Supra | Omd Cialis

The SEC’s first-ever cryptocurrency insider trading case underscores the authorities’ desire to establish their jurisdiction in this area

US securities regulators recently announced charges against an executive at leading cryptocurrency exchange Coinbase Global and two of his employees in the first federal trial for alleged insider trading in virtual currencies. The case also underscored the Securities and Exchange Commission’s (SEC) determination to assert jurisdiction over cryptocurrencies and other digital assets it considers securities, and signaled a possible dispute between regulators over the agency’s reach.

The SEC and the Department of Justice (DOJ) filed civil and criminal complaints against Ishan Wahi, a product manager at Coinbase, his brother Nikhil Wahi, and their friend Sameer Ramani. The indictments allege that Ishan Wahi leaked confidential information about upcoming announcements of new crypto assets that would allow Coinbase users to trade through his exchanges with his brother and Ramani.

Nikhil Wahi and Ramani allegedly bought and sold at least 25 crypto assets for a profit of more than $1.1 million using Ethereum blockchain wallets at least 14 times prior to Coinbase’s announcements from June 2021 to April 2022, according to the indictments .

The case comes just weeks after the DOJ brought insider trading charges against an employee of Opensea, a marketplace for non-fungible tokens (NFTs). Similar to cryptocurrencies, NFTs are based on blockchain technology, which is fast disrupting the financial sector and prompting calls for more oversight from regulators.


For more information on cryptocurrency regulation, read the full digital version of the Cryptos on the Rise 2022 report here.


The SEC said that at least nine of the crypto assets involved “were securities,” a claim that drew the attention of many attorneys, crypto legal experts, advocates, and former and current Commodity Futures Trading Commission (CFTC) commissioners, who said case could have far-reaching implications.

Announcing the SEC’s case, Gurbir S. Grewal, director of the SEC’s Enforcement Division, said: “We are not concerned with labels but with the commercial realities of an offering. In this case, these realities confirm that a number of the crypto assets in question were securities; and, as alleged, the defendants engaged in typical insider trading prior to their listing on Coinbase. Rest assured, we will continue to ensure a level playing field for investors, regardless of the denomination of the securities involved.”

Damian Williams, the US Attorney in Manhattan, said in a statement, “Fraud is fraud is fraud, whether it’s on the blockchain or on Wall Street.”

The DOJ said the Wahi brothers were arrested in Seattle while Ramani is at large. Prosecutors also said Ishan Wahi bought a one-way plane ticket to India after a Coinbase security director called him to a meeting at the company’s Seattle office. Law enforcement prevented him from boarding the May 16 flight, prosecutors said.

Answer from Coinbase

An SEC official said his investigation is continuing and declined to say whether he would take action against Coinbase himself for listing the tokens he believed to be securities in the complaint. “Coinbase kept such information confidential and cautioned its employees not to act on or advise others on the basis of this information,” the SEC said.

Coinbase has shared with prosecutors findings from an internal investigation into the trade, the company’s chief security officer, Philip Martin, said. “We are committed to doing our part to ensure all market participants have access to the same information,” Martin wrote on Twitter.

Paul Grewal, Chief Legal Officer at Coinbase, disputed the SEC’s claim that the instruments involved were securities. “Coinbase does not list securities. Period,” Grewal wrote on Twitter. “We have worked with both the DOJ and the SEC on this investigation,” Grewal said. “The DOJ reviewed the same facts and decided not to pursue securities fraud charges against those involved.” (Coinbase CLO Grewal does not appear to be related to SEC’s Grewal.)

Andrew St. Laurent, an attorney for Ishan Wahi, declined to comment. A lawyer for Nikhil Wahi did not immediately respond to requests for comment. An attorney for Ramani could not be identified.

“Regulation through enforcement” and a possible turf war

In a rare criticism of another federal regulator, CFTC Commissioner Caroline Pham released a statement suggesting that the SEC sets policy “in the dark” and without accountability. “The case SEC vs Wahi is a striking example of ‘regulation through enforcement,'” said Pham. “The SEC complaint alleges that dozens of digital assets, including those that could be termed utility tokens and/or certain tokens related to decentralized autonomous organizations (DAOs), are securities.”

She said the case could have “far-reaching implications” and stressed it is crucial that regulators work together. “Major issues are best addressed through a transparent process that encourages the public to use expert input to develop appropriate policy – by establishing rules for notice and comment under the Administrative Procedures Act,” she said. “Regulatory clarity comes from being open, not in the dark.”

The CFTC has made and named its own claims about the nature of cryptocurrencies Were and is therefore subject to its own jurisdiction. A decision by the federal jury in Boston at the end of July confirmed this view. The founder of a defunct cryptocurrency company has been convicted of fraud over false claims that his virtual currency is backed by $300 million in gold. The jury found Randall Crater, 51, guilty of wire fraud and illegal money dealing. The CFTC’s lawsuit against Crater and his failed company, Nevada-based My Big Coin Inc., had resulted in one of the first court rulings to find that virtual currency could be considered a commodity under CFTC jurisdiction.

Former CFTC Commissioner Brian Quintenz sided with Pham in voicing his concerns about the SEC wahi Case: “Regulation through enforcement, threats, coercion, public relations, or any other means beyond the rulemaking process of the APA (Administrative Procedure Act) is grossly inappropriate,” Quintenz said on Twitter.

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