Leading crypto exchange Coinbase’s former product manager Ishan Wahi and brother Sameer have been arrested in what appears to be the first-ever case of insider trading in the cryptocurrency sector.
Also implicated in the conspiracy is friend and associate Sameer Ramani, who currently remains at large.
The indictment cites at least 14 occasions of wire fraud and conspiracy involving 25 digital assets.
Ishan Wahi is alleged to have disclosed confidential information regarding planned Coinbase listings, “so that they could place profitable trades in those crypto assets in advance of Coinbase’s public listing announcements,” according to the indictment.
The arrests shows that “Web3 is not a law-free zone,” US Attorney Damian Williams announced, adding: “Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street.”
FBI Assistant Director Michael J. Driscoll said: “Today’s action should demonstrate the FBI’s commitment to protecting the integrity of all financial markets – both ‘old’ and ‘new.’”
Arrests a boost for the SEC
The arrests followed a complaint by the Securities Exchange Commission (SEC) accusing the parties of generating over US$1.1mln in illicit profits.
It could be a moral boost in the SEC’s long-running battle to have crypto assets deemed as securities, following a disappointing verdict for the regulator in its dispute with Ripple Labs.
Jumping on the opportunity, Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said: "We are not concerned with labels, but rather the economic realities of an offering. In this case, those realities affirm that a number of the crypto assets at issue were securities, and, as alleged, the defendants engaged in typical insider trading ahead of their listing on Coinbase."
Ishan Wahi was arrested while attempting to flee the US to India after being summoned by Coinbase’s director of security operations.
If proven guilty, all parties could face up to 20 year in prison.
NASDAQ-listed COIN shares responded with a 2.1% drop in Friday’s pre-market trade.