- K Kim and S Pettigrove
Ex-Coinbase employee sentenced in insider trading case
Ishan Wahi, a former product manager at Coinbase, was sentenced to 2 years in prison this week, following a hearing in the United States District Court for the Southern District of New York. Prosecutors allege that Wahi made up to USD$1.5M in profits by trading on confidential information regarding upcoming Coinbase token listings. Following the 2 years imprisonment, Ishan Wahi faces a further 2 years of supervised release.
In addition to trading on information gleaned from his employer, Wahi allegedly provided tips to his brother Nikhil Wahi and an associate Sameer Ramani, earning profits exceeding USD$1M. The Wahi brothers were arrested in mid 2022 by the US authorities in the course of an apparent attempt to flee to India.
Legal counsel for Wahi submitted:
There’s no need for this court to impose additional punishment…He has lost his job. He has lost his reputation. He has suffered an enormous amount of negative publicity both here in the United States and in India.
Nikhil Wahi pled guilty to charges of wire fraud conspiracy in September last year and was sentenced to 10 months in prison. Prosecutors argued that Ishan Wahi was the most culpable in facilitating the insider trading scheme.
This was not a one-off mistake - this was over a ten month period…Having access to the kind of information that this defendant had access to was like being able to read the newspaper a day in advance.
Ishan Wahi's sentencing follows shortly after a jury found a former OpenSea product manager, Nate Chastain, guilty of wire fraud and money laundering in a similar case involving NFT listings on the marketplace's front page in what US prosecutors dubbed the first ever digital assets insider trading case.
These recent high-profile incidents highlight the importance for Web3 companies to implement a token dealing policy for employees and contractors, specific to the relevant business or project. Along with this, regular employee training, particularly for those in high-risk positions including senior management and product managers can help mitigate risks of insider trading which has the potential to cause reputational harm to the business and customer relationships.
It has been reported that the US Securities and Exchange Commission are close to settling separate insider trading charges against Ishan Wahi under US securities law. If those charges are pursued, the SEC will need to establish that one or more of the tokens which Wahi traded in are securities. However, this week's sentencing on charges brought by the US Department of Justice highlights that it is not necessary for the relevant digital asset to be a security (or financial product in the Australian context) in order for regulatory authorities to pursue charges under general fraud and other legislation in relation to trading in digital assets based on inside information.