May 2023 has been a month of firsts for the cryptocurrency world. Last week we had a guilty verdict in the OpenSea NFT “insider trading” case. And, yesterday, we saw the first-ever prison sentenced handed down in an cryptocurrency “insider trading” case. DOJ Press Release
On May 9, 2023, former Coinbase product manager, Ishan Wahi, was sentenced to two years in federal prison for leaking confidential information about upcoming Coinbase crypto asset listings to his brother and a friend. Crypto Criminal Defense Lawyer Blog
Background of the Case
Coinbase Global, Inc., one of the largest cryptocurrency exchanges globally, offers its users the ability to acquire, exchange, and sell various crypto assets. When Coinbase adds a new crypto asset to its platform, the market value of the asset typically increases significantly. Consequently, Coinbase has a company policy that strictly prohibits employees from sharing such information with others, including providing "tips" to anyone who might trade based on that information.
Ishan Wahi worked as a product manager assigned to Coinbase's asset listing team. The government charged that in this capacity, Wahi had detailed and advanced knowledge of which crypto assets Coinbase was planning to list and the timing of public announcements about those listings.
The DOJ charged that between June 2021 and April 2022, Wahi violated his duties of trust and confidence to Coinbase by providing “confidential business information” to his brother, Nikhil Wahi, and his friend, Sameer Ramani. The government charged that they used this insider information to secretly engage in profitable trades around public announcements by Coinbase that it would be listing certain crypto assets.
Discovery and Arrest
According to the DOJ, these trading activities came to light on April 12, 2022, when a Twitter account known in the crypto community tweeted about an Ethereum blockchain wallet that had bought hundreds of thousands of dollars' worth of tokens exclusively featured in the Coinbase Asset Listing post approximately 24 hours before it was published. The trading activity referenced in the tweet was conducted by Ramani based on tips provided by Wahi.
In response, Coinbase launched an investigation and publicly stated that any employee found to have leaked confidential information would be terminated and potentially face criminal prosecution. On May 11, 2022, Coinbase's director of security operations emailed Wahi, asking him to attend an in-person meeting relating to the asset listing process. Wahi confirmed he would attend the meeting.
However, that government alleged that on May 15, 2022, Wahi purchased a one-way flight to India scheduled to depart the next day, shortly before his Coinbase interview. In the hours between booking the flight and his scheduled departure, Wahi called and texted Nikhil Wahi and Ramani about the Coinbase investigation. Law enforcement stopped Wahi before boarding the flight, preventing him from leaving the country.
Sentencing and Legal Implications
Wahi pled guilty to two counts of conspiracy to commit wire fraud and was sentenced to two years in prison. Additionally, he was ordered to forfeit various crypto assets received in connection with the scheme.
This landmark case sets yet another legal precedent for “insider trading” in the cryptocurrency market. Both the OpenSea and Coinbase “insider trading” prosecutions focussed on the use of company “confidential business information” by employees to front-run trades.
This blog post was prepared with the assistance of ChatGPT-4 AI. Nothing in this post should be considered legal advice or the creation of an attorney-client relationship. This blog is strictly for informational purposes only.