Full text of the U.S. Department of Justice: First arrest of crypto insider trading Coinbase former employee escape details like a blockbuster

Preface

The U.S. Department of Justice once again demonstrated its strength and effectiveness of regulation. For the first time, it arrested insider traders in the cryptocurrency industry. The full text of the insider trading of former Coinbase employees is like a movie blockbuster, and may become a movie theme for Netflix. In the crypto industry where insider trading is rampant, it not only causes the harvest of retail investors, but also makes it a compliance obstacle that cannot be achieved by similar spot ETFs. In fact, exchanges such as Binance also have a lot of strict self-examinations on insider trading. It is expected that in the future, there will be more and more criminal means involving insider trading, which will play an important role in purifying and complying with the industry.

U.S. Department of Justice press release

Damian Williams, U.S. Attorney for the Southern District of New York, and Michael J. Driscoll, Assistant Director-in-Charge of the Federal Bureau of Investigation’s (FBI) New York Field Office, today announced the unsealing of charges against former Coinbase product manager Ishan Wahi, his brother Nikhil Wahi, and his friend Sameer Ramani for alleged wire and mail fraud, as well as insider trading using confidential information about which crypto assets would be listed on the Coinbase exchange. Ishan Wahi and Nikhil Wahi were arrested this morning in Seattle, Washington, and are scheduled to appear in the U.S. District Court for the Western District of Washington today. Sameer Ramani was also charged today and remains at large.

“Today’s charges are a further reminder that Web3 is not a lawless place,” said U.S. Attorney Damian Williams. “Just last month, we announced our first insider trading case involving NFTs, and today we announced our first insider trading case involving the cryptocurrency markets. Our message with these charges is clear: fraud is fraud, whether it happens on the blockchain or on Wall Street. The Southern District of New York will continue to relentlessly bring fraudsters to justice wherever we find them.”

“Although the charges in this case involve trades conducted on cryptocurrency exchanges rather than traditional financial markets, they still constitute insider trading,” said FBI Assistant Director Michael J. Driscoll. “As alleged, the defendants conducted unlawful trades in at least 25 different crypto assets and realized illicit gains totaling approximately $1.5 million. Today’s action should demonstrate the FBI’s commitment to protecting the integrity of all financial markets – both ‘old’ and ‘new’.”

As alleged in the indictment unsealed in Manhattan federal court (the entire text of the indictment and the description thereof herein constitute only an allegation, and every fact described therein shall be deemed an allegation):

background

At the time of the case, Coinbase was one of the largest cryptocurrency exchanges in the world. Coinbase users could acquire, exchange, and sell a variety of crypto assets through their Coinbase online accounts. Coinbase also regularly added new crypto assets to the tradable asset classes, and after Coinbase announced that it would add a particular crypto asset, its market value would often increase significantly. As a result, Coinbase kept such information strictly confidential and prohibited its employees from sharing it with others, including providing “tips” to anyone who might trade based on the information.

Starting in approximately October 2020, Ishan Wahi worked at Coinbase as a product manager on the Coinbase Asset Listing team. In this role, Ishan Wahi was involved in the highly confidential process of listing crypto assets on the Coinbase exchange and had detailed and detailed knowledge of which crypto assets Coinbase planned to list and the timing of public announcements regarding the listing of these crypto assets. Starting from at least August 2021 and continuing until May 2022, Ishan Wahi was one of the few employees directly involved in the Coinbase asset listing process and was a member of a Coinbase private channel. The private channel was used to discuss internal content such as Coinbase's "exact announcement/release date + timeline".

Insider Trading Scheme

On at least 14 occasions between June 2021 and April 2022, Ishan Wahi had advance knowledge of Coinbase’s plans to add specific crypto assets and the time Coinbase would announce the list of those assets, and disclosed that Coinbase confidential information to his brother Nikhil Wahi or his friend Sameer Ramani so that they could profitably trade those crypto assets prior to Coinbase’s public listing announcement.

After receiving a tip from Ishan Wahi, Nikhil Wahi and Sameer Ramani used an anonymous Ethereum blockchain wallet to purchase these crypto assets some time before Coinbase publicly announced that it was or was considering listing these crypto assets on its exchange. Nikhil Wahi and Sameer Ramani then sold them for a profit after the Coinbase public listing announcements. Based on confidential information provided by Ishan Wahi, Nikhil Wahi and Sameer Ramani collectively traded some time before at least 14 separate Coinbase public listing announcements involving at least 25 different crypto assets. As a result of the insider trading scheme, Nikhil Wahi and Sameer Ramani collectively generated realized and unrealized gains totaling at least approximately $1.5 million.

In order to conceal their purchases of crypto assets prior to the Coinbase listing announcement, Nikhil Wahi and Sameer Ramani used centralized exchange accounts held in the names of others and moved funds, crypto assets, and proceeds generated through the scheme through multiple anonymous Ethereum blockchain wallets. Nikhil Wahi and Sameer Ramani also regularly created and used new Ethereum blockchain wallets without any prior transaction history to further conceal their involvement in the scheme.

Ishan Wahi tried to flee the United States

On April 11, 2022, Coinbase announced that it was considering listing dozens of crypto assets on its exchange. According to confidential Coinbase information provided by Ishan Wahi, Sameer Ramani used multiple anonymous Ethereum blockchain wallets to purchase large quantities of at least six crypto assets that will appear in Coinbase's listing announcement on April 11, 2022.

Shortly after Sameer Ramani traded ahead of Coinbase’s April 11 listing announcement, on April 12, 2022, a Twitter account well-known in the crypto community tweeted about an Ethereum blockchain wallet that “purchased hundreds of thousands of dollars of tokens that were only listed in the Coinbase asset list post approximately 24 hours before the Coinbase announcement.” The trading activity mentioned in the April 12 tweet was trades caused by Sameer Ramani. Coinbase has since publicly responded on Twitter that it has begun investigating the matter, and a few weeks later stated in a public blog post that any Coinbase employee who leaks confidential company information will be “immediately terminated and referred to the appropriate authorities (and may be subject to criminal prosecution).”

On May 11, 2022, Coinbase's Head of Security Operations emailed Ishan Wahi notifying him that he should attend a face-to-face meeting related to the Coinbase asset listing process at Coinbase's Seattle, Washington office on Monday, May 16, 2022. Ishan Wahi confirmed that he would attend the meeting.

On the evening of Sunday, May 15, 2022, Ishan Wahi purchased a one-way flight to India that was scheduled to depart the next day shortly before Ishan Wahi's Coinbase meeting. Prior to boarding his flight, Ishan Wahi falsely told Coinbase employees that he had departed for India, when in fact he had not yet departed. In the hours between booking his flight and his scheduled departure, Ishan Wahi called and texted Nikhil Wahi and Sameer Ramani regarding the Coinbase investigation and sent both of them a photo of a message he had received from Coinbase's Director of Security Operations on May 11, 2022. Prior to boarding his flight to India on May 16, 2022, Ishan Wahi was intercepted by law enforcement and prevented from leaving the country.

ISHAN WAH, 32, of Seattle, Washington, is charged with two counts of conspiracy to commit wire fraud and two counts of mail fraud, each of which carries a maximum sentence of 20 years in prison.

NIKHIL WAHI, 26, of Seattle, Washington, is charged with one count of conspiracy to commit wire fraud and one count of mail fraud, each of which carries a maximum sentence of 20 years in prison.

SAMEER RAMANI, 33, of Houston, Texas, is charged with one count of conspiracy to commit wire fraud and one count of mail fraud, each of which carries a maximum sentence of 20 years in prison.

The statutory maximum sentences are established by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Williams commended the FBI for its investigative work. He also thanked the Department of Justice’s National Cryptocurrency Enforcement Team and the Securities and Exchange Commission for their assistance, which today filed separate civil actions against the defendants. Mr. Williams further thanked Coinbase Global, Inc. for its cooperation with the investigation.

This case was prosecuted by the Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Noah Solowiejczyk and Nicolas Roos are in charge of the prosecution.

The charges in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

Coinbase responds

Coinbase CEO Brian Armstrong responded by tweeting (https://twitter.com/brian_armstrong/status/1550162989881253889), "Coinbase actively monitors illegal activity and investigates any suspected misconduct. In April of this year, we received information about possible front-running of assets shortly before they were listed on Coinbase. We immediately launched an investigation. As a result of the investigation, we identified 3 suspects and provided this information to law enforcement. One of them was an employee of Coinbase, and we fired him. Today, the Department of Justice filed criminal charges against this former employee and two others for this abuse. It is illegal to engage in front-running trading on Coinbase, and we will investigate bad actors and hand them over to law enforcement, and they will face legal consequences."

Wu said that previous reports

In the Coinbase insider trading investigation conducted by Wu , it was found that the price increase of Coinbase's new coins in the week before the launch was greater than that of Binance. Without considering outliers (increase greater than 1 times), the average increase of Coinbase's new coins was 24.3%, and Binance was 5.6%; in terms of outliers, Coinbase had 18 coins that increased by more than 1 times, accounting for about 15.3%, and the largest increase within 7 days was about 6.6 times.

According to the latest roadmap , Coinbase will launch a large number of tokens in the second quarter of this year, of which 50 are clearly listed. The scale of this new launch is large, but the quality is still "mixed", which has aroused ridicule from overseas public opinion. We have published an article to review this type of new tokens.