Earlier this week, Nikhil Wahi, the brother of a former Coinbase product manager, has pleaded guilty to one count of conspiracy to commit wire fraud in connection with a scheme to commit insider trading in crypto assets. The charge carries a maximum sentence of 20 years.
Nikhil Wahi was arrested in July this year, after being alleged to have used confidential Coinbase information about which crypto assets were about to be listed on Coinbase. Nikhil Wahi had transferred funds, crypto assets and proceeds through multiple anonymous Ethereum blockchain wallets.
Damian Williams, the United States Attorney for the Southern District of New York, said:
Less than two months after he was charged, Nikhil Wahi admitted in court today that he traded in crypto assets based on Coinbase’s confidential business information to which he was not entitled.
For the first time ever, a defendant has admitted his guilt in an insider trading case involving the cryptocurrency markets.
Today’s guilty plea should serve as a reminder to those who participate in the cryptocurrency markets that the Southern District of New York will continue to steadfastly police frauds of all stripes and will adapt as technology evolves. Nikhil Wahi now awaits sentencing for his crime and must also forfeit his illicit profits.
Coinbase employees were frequently exposed to confidential and privileged information prior to the public being informed about tokens to be listed on the exchange. For almost a year, Nikhil Wahi used unanimous Ethereum blockchain wallets to buy up crypto-assets after being tipped by his brother Ishan Wahi before they were publicly listed on Coinbase. The crypto assets were then sold for a profit.
Coinbase had a strict internal process that prohibited its employees from sharing any confidential information with others, as this could impact the market price. Nikhil Wahi’s charge was one of three that were the first ever crypto insider trading tipping scheme prosecuted in the US. Ishan Wahi, a former Coinbase product manager and Nikhil's brother, was charged for allegedly tipping off Nikhil Wahi and Sameer Ramani (who was a friend of Ishan Wahi) about upcoming token sales, making profits of USD$1.1M by front running listings in over 25 tokens.
As part of the prosecution, the SEC had made allegations that the tokens involved in the insider trading scam were securities under US law. At the time Coinbase was critical of the SEC investigation, citing the lack of clear guidance and rules for defining cryptocurrencies as securities under US law.
Coinbase's Chief Legal Officer, Paul Grewal said to Coindesk:
We are confident that our rigorous diligence process – a process the SEC has already reviewed – keeps securities off our platform, and we look forward to engaging with the SEC on the matter.
Nikhil Wahi is scheduled to be sentenced in December for his crimes and the prosecution of the others continues. The question of whether the tokens involved in the trading scandal are securities or not will not be decided by the guilty plea, but will have to wait for another case as the SEC continues "regulation by enforcement".