Former Coinbase (NASDAQ:COIN) executive Ishan Wahi and his brother, Nikhil Wahi, have agreed to settle charges leveled by the Securities and Exchange Commission (SEC).
In mid-2022, the SEC announced the charges alleging insider trading. The defendants were allegedly benefiting from information prior to it becoming public knowledge. The SEC claimed that Wahi helped to coordinate the platform’s announcements that included what crypto was available for trading. Coinbase treated such information as confidential and warned its employees not to trade on the basis of that information, but allegedly Ishan Wahi ignored these requirements and tipped his brother, as well as another individual Sameer Raman, in advance of them being posted.
The defendants allegedly purchased at least 25 digital assets and then sold them for a profit.
Subject to court approval, the two brothers, Ishan and Nikhil Wahi, have consented to the entry of final judgments that permanently enjoin them from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The two brothers must forfeit their gains, the disgorgement and prejudgment interest in the SEC’s case would be deemed satisfied by the orders of forfeiture of the Wahi brothers’ assets in the criminal action if approved by the court.
The SEC has decided not to seek civil penalties in light of the prison sentences.
Ishan and Nikhil Wahi have also pled guilty to conspiracy to commit wire fraud in a parallel criminal case.
Announced earlier this month, Ishan Wahi was sentenced to 24 months in prison and ordered to forfeit 10.97 ether and 9,440 Tether, and Nikhil Wahi was sentenced to 10 months in prison and ordered to forfeit $892,500.
The SEC’s complaint, filed on July 21, 2022, in the U.S. District Court for the Western District of Washington, alleged that, while employed at Coinbase, Ishan Wahi helped to coordinate the platform’s public listing announcements that included what crypto assets would be made available for trading. According to the complaint, Coinbase treated such information as confidential and warned its employees not to trade on the basis of, or tip others with, that information. However, from at least June 2021 to April 2022, in breach of his duties, Ishan repeatedly tipped the timing and content of upcoming listing announcements to his brother, Nikhil Wahi, and his friend, Sameer Ramani. Ahead of those announcements, which usually resulted in an increase in the assets’ prices, Nikhil Wahi and Ramani allegedly purchased at least 25 crypto assets, at least nine of which were securities, and then typically sold them shortly after the announcements for a profit. The Wahi brothers agreed, as part of the settlement, not to deny the SEC’s allegations.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said that federal securities laws do not exempt “crypto asset securities” from a prohibition against inside trading.
Of note is that the SEC stated, once again, that at least nine of the digital assets were securities – a claim that Coinbase disputes.
After the charges were revealed, Paul Grewal, Coinbase Chief Legal Officer, posted that the crypto exchange does not ever list securities on its platform, stating that the SEC was pursuing “regulation by enforcement.”