The Securities and Exchange Commission (SEC) announced on Tuesday that former Coinbase manager Ishan Wahi and his brother, Nikhil Wahi, have agreed to settle charges of insider trading using knowledge from the exchange. The SEC has forced Ishan Wahi to forfeit 10.97 ETH ($20,848.92) and 9,440 USDT, while Nikhil Wahi was made to forfeit $892,500. These fines represent penalties for disgorgement of ill-gotten gains from their trading scheme, plus prejudgment interest.
The Wahi brothers, along with their friend Sameer Ramani, were charged by the Department of Justice in July 2021 in the first-ever insider trading case involving cryptocurrencies. Ishan Wahi was accused of tipping off his brother and friend with information about coins that would soon be listed at Coinbase, who would then buy them in advance of public listing announcements. The SEC explained that Coinbase treated such information as confidential and warned its employees not to trade on the basis of, or tip others with, that information.
The SEC’s analysis has shown that public listings at popular exchanges have a largely appreciative impact on a coin’s price. Indeed, the co-conspirators were alleged by prosecutors to have profited $1.5 million across 55 different token trades between June 2021 and April 2022.
Initially, Ishan Wahi fought the allegations against him, but he ultimately pled guilty to two counts of conspiracy to commit wire fraud in February. His brother, Nikhil, already did the same in September, lamenting that his crime was “something that I will have to live with forever.” Both brothers agreed not to deny the SEC’s allegations as part of the settlement deal.
Although Nikhil paid the larger fine, he will only spend 10 months behind bars, as opposed to his brother’s two-year prison sentence. The SEC said that at least nine of the assets purchased by the group “were securities,” defying claims by Coinbase that the exchange doesn’t list any securities.
In February, Ishan Wahi’s lawyers challenged these claims, and Coinbase continues to spar with the agency regarding legal classifications for cryptocurrency as a whole. However, the SEC has made it clear that the federal securities laws do not exempt crypto asset securities from the prohibition against insider trading.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said in the agency’s statement, “I am grateful to the SEC staff for successfully working to resolve this matter.” The SEC has managed to successfully resolve the case against the Wahi brothers, but it has also highlighted the importance of transparency in the cryptocurrency market. Public listings at popular exchanges can significantly impact a coin’s price, and it is crucial that all information regarding these listings is treated confidentially to prevent insider trading.