A former Coinbase employee was arrested and charged for his alleged role in a blatant insider trading system involving cryptocurrencies listed on the platform, the FBI said Thursday.
Ishan Wahi, a 32-year-old ex-product manager at Coinbase, is accused of tipping off his brother Nikhil Wahi and a friend Sameer Ramani about the company’s confidential plans to offer certain digital tokens.
The alleged fraudsters used the information to buy the cryptocurrencies just before they were publicly listed and experienced a surge in value.
The settlement would have enabled the trio to amass at least $1.5 million in profits, according to court documents and a release from the Ministry of Justice. Ramani and Nikhil Rahi traded at least two dozen crypto assets prior to the public listing announcements from at least June 2021 to April 2022.
“While the allegations in this case relate to transactions made in a crypto exchange — rather than a more traditional financial market — they still constitute insider trading,” FBI Assistant Director Michael Driscoll said in a statement. .
“Today’s action should demonstrate the FBI’s commitment to protecting the integrity of all financial markets – both ‘old’ and ‘new’,” he added.
The DOJ described the situation as the “first tipping scheme for cryptocurrency insider trading”.
The Wahi brothers were arrested in Seattle on Thursday morning and will appear in court on the charges later in the day. Ramani has been charged and “remains at large,” the DOJ said.
The SEC has also filed suit against Ishan Wahi for violating its anti-fraud rules Bloomberg.
Ishan Wahi was charged with two counts of conspiracy to commit bank fraud and two counts of bank fraud. Each charge carries a maximum prison sentence of 20 years. His brother and Ramani are facing similar charges.
The FBI alleged that Nikhil Wahi and Ramani were using accounts under different names as well as anonymous Ethereum blockchain wallets in an attempt to hide their trading activities.
Coinbase CEO Brian Armstrong said the company forwarded its findings to the FBI.AFP via Getty Images
When confronted with the charges, Ishan Wahi reportedly bought a one-way ticket to India and tried to flee the country, but was prevented from doing so by law enforcement.
Coinbase has addressed the situation in a long blog post attributed to CEO Brian Armstrong. The company said it has launched an internal investigation into allegations of “front running of certain assets ahead of an announcement from the company”.
Start your day with everything you need to know
Morning Report delivers the latest news, videos, photos and more.
The company said it disclosed its findings to DOJ officials and fired the employee who had participated in the scheme. Coinbase did not mention Wahi by name.
“Coinbase takes allegations of misuse of company information very seriously, as evidenced by our prompt investigation into this matter. Again, we have zero tolerance for this type of misconduct and will not hesitate to take action against an employee if we discover misconduct,” the blog post reads.
“We understand that the SEC has filed separate securities fraud charges today in connection with these misdeeds,” the post added. “The DOJ has not charged any securities fraud. None of the assets listed on our platform are securities, and the SEC charges are an unfortunate distraction from appropriate law enforcement action today.”
The Post has reached out to Coinbase for further comment.
Bloomberg was the first to report on the arrests. Representatives of the accused parties did not respond to the point of sale’s requests for comment.
The case marks the latest setback for Coinbase, which recently took major layoffs during a downturn in the cryptocurrency market.