An Ex-Coinbase Manager Has Been Charged With the First Case of Insider Crypto Trading

The scheme allegedly led to gains of $1.5 million.

On July 21, the Department of Justice charged three people in the first cryptocurrency insider trading scheme. It alleges that Ishan Wahi, a former product manager at Coinbase, shared confidential information with his brother, Nikhil Wahi, and a friend, Sameer Ramani.

Coinbase CEO Brian Armstrong published a series of messages on Twitter the same day stating that the exchange actively monitors for illegal activity. Not everyone is satisfied with the response, as some in the crypto community have criticized how long it took Coinbase to catch on.

What happened?

Ishan Wahi began working as Coinbase's product manager in October 2020, where he was involved in the process of adding new cryptocurrencies to the exchange. For at least August 2021 through May 2022, he was a member of a private Coinbase messaging channel for employees with direct involvement in the listing process. In that channel, employees discussed new digital asset listings, including timelines and announcement dates.

Cryptocurrencies often increase in value after Coinbase announces it will list them, because of how popular the exchange is. There's even a term for it -- the "Coinbase Effect." Coinbase prohibits employees from sharing or trading on any non-public information, like upcoming listing announcements.

Ishan Wahi allegedly tipped off Nikhil Wahi and Sameer Ramani at least 14 times from June 2021 through April 2022. He informed them of at least 25 cryptocurrencies Coinbase was planning to list. They acquired those digital assets using anonymous crypto wallets. In total, the fraud, which is called front-running, led to approximately $1.5 million in gains.

Evidence of the scheme first came to light in April 2022. Ramani purchased several cryptocurrencies that Coinbase included in a new listing announcement on April 11, 2022. The next day, Twitter user Cobie tweeted about the purchases and how they happened right before Coinbase's announcement.

An attempt to flee the country

After Coinbase investigated, its director of security operations contacted Wahi and told him to attend an in-person meeting on May 16. The evening before that date, Ishan Wahi purchased a one-way flight to India set to depart shortly before his meeting. He also contacted Nikhil Wahi and Sameer Ramani to let them know about the investigation.

Law enforcement arrested Ishan Wahi before he could board his flight to India. He faces two counts of wire fraud conspiracy and two counts of wire fraud. Each charge carries a maximum sentence of 20 years. At his first federal court appearance, bail was set at $1 million and he was ordered to surrender his passports.

Nikhil Wahi and Sameer Ramani have each been charged with one count of wire fraud conspiracy and one count of wire fraud. Nikhil Wahi has been arrested, but Sameer Ramani remains at large.

A crackdown on insider trading is sorely needed

This is the second case of insider trading related to Web3 technology in as many months. In June, the Department of Justice charged a former OpenSea exec with insider trading. OpenSea is one of the most popular places to buy and sell non-fungible tokens (NFTs).

It's certainly good to see people face consequences for insider crypto trading. It's a rampant issue that affects every investor. The fraud also motivated Coinbase to change the way it lists cryptos.

The fact that it took so long for Coinbase to catch on is concerning, and the exchange has rightly faced criticism for that. Coinbase claims to be actively monitoring for this type of illegal activity. But the insider trading went on for nearly a year, and it wasn't uncovered until a user on Twitter mentioned it. That's not a good look for what's widely considered to be one of the top crypto exchanges.

While consequences for crypto fraud are always a welcome sight, these two cases are only the tip of the iceberg. Hopefully they lead to better security practices in the industry, because it's everyday retail investors that suffer the most from these scams.