A former Coinbase employee was arrested and charged for his alleged role in a brazen insider trading scheme involving cryptocurrencies listed on the platform, the feds said on 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 begin offering certain digital tokens.
The alleged fraudsters used the info to buy the cryptocurrencies just before they were publicly listed and experienced a surge in value.
The scheme allegedly allowed the trio to amass at least $1.5 million in profits, according to court documents and a Justice Department release. Ramani and Nikhil Rahi traded at least two dozen crypto assets in advance of public listing announcements from at least in June 2021 through April 2022.
“Although 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 ever cryptocurrency insider trading tipping scheme.”
The Wahi brothers were arrested in Seattle on Thursday morning and were set for a court hearing on the charges later in the day. Ramani has been charged and “remains at large,” according to the DOJ.
The SEC has also filed suit against Ishan Wahi for violating its anti-fraud rules, according to Bloomberg.
Ishan Wahi was charged with two counts of wire fraud conspiracy and two counts of wire fraud. Each charge has a maximum sentence of 20 years in prison. His brother and Ramani face similar charges.
The feds alleged that Nikhil Wahi and Ramani used accounts held under different names as well as anonymous Ethereum blockchain wallets in a bid to conceal their trading activity.
When confronted about the allegations, Ishan Wahi purportedly bought a one-way ticket to India and attempted to flee the country, but was stopped from doing so by law enforcement.
Coinbase addressed the situation in a lengthy blog post attributed to CEO Brian Armstrong. The company said it launched an internal investigation into allegations of “frontrunning of certain assets ahead of a company announcement.”
The company said it turned over its findings to DOJ officials and fired the employee who participated in the scheme. Coinbase did not mention Wahi by name.
“Coinbase takes allegations of improper use of company information very seriously, as demonstrated by our rapid investigation of this matter. Again, we have zero tolerance for this kind of misconduct and will not hesitate to take action against any employee when we find wrongdoing,” the blog post said.
“We understand that the SEC has separately filed securities fraud charges related to this wrongdoing today,” the post added. “The DOJ did not charge securities fraud. No assets listed on our platform are securities, and the SEC charges are an unfortunate distraction from today’s appropriate law enforcement action.”
The Post has reached out to Coinbase for further comment.
Bloomberg was first to report on the arrests. Representatives for the accused parties did not return the outlet’s requests for comment.
The case marks the latest setback for Coinbase, which recently conducted sweeping layoffs during a downturn in the cryptocurrency market.