Cryptocurrency Insider Trading, Fraud in Feds' CrosshairsFirst-Ever Type of Insider Trade Case Charged Coinbase Ex-Employee With Wire Fraud
Cryptocurrency's brave new world is seeing a raft of traditional criminal prosecutions by the U.S. Department of Justice, which charged three with insider training and successfully prosecuted a New York man for defrauding investors.
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Federal attorneys this week unsealed an indictment against a former product manager at Coinbase who tipped off his brother and the brother's friend about cryptocurrency assets about to be listed on the trading platform. The three men faces charges including wire fraud conspiracy and wire fraud in connection with a scheme to commit insider trading, each of which carries a maximum sentence of 20 years. The government alleges they made illegal trades in at least 25 different crypto assets, obtaining approximately $1.5 million.
The Securities and Exchange Commission also sued the trio in federal civil court in Seattle in a case seeking civil penalties and disgorgement.
Separately, the DOJ announced the jury conviction of a Randall Crater, 51, for defrauding investors of $6 million in a virtual currency scheme he marketed as "My Big Coins."
Coinbase Case: 'Fraud is Fraud is Fraud'
Former Coinbase employee 32-year-old Ishan Wahi faces two counts of conspiracy to commit wire fraud and two counts of wire fraud. Co-defendants Nikhil Wahi, 26, and Sameer Ramani, 33, each face one count of conspiracy and one count of wire fraud.
The Wahi brothers were arrested in Seattle on Thursday. Ramani, a resident of Houston, remains at large, the DOJ says. Ishan Wahi attempted to flee to India in 2022 after Coinbase's director of security operators told him to appear for an in-person meeting with company personnel.
The criminal prosecution is the "first ever insider trading case involving cryptocurrency markets," says Southern District of New York U.S. attorney Damian Williams says. "Fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street."
The indictment shows Ishan Wahi sharing confidential listings information with his brother and Ramani in June 2021, doing so on 14 separate occasions through April of this year. The two recipients of insider information used anonymous Ethereum blockchain wallets to buy cryptoassets ahead of their listing on the Coinbase platform.
They attempted to cover their tracks by transferring proceeds through multiple anonymous blockchain wallets and accounts held in the names of others.
Earlier this year, a cryptocurrency influence tweeted evidence of insider trading by Ramani, leading Coinbase to respond that it initiated an investigation.
In a blog post, Coinbase CEO Brian Armstrong said the company actively assisted federal investigators. He took issue with the Securities and Exchange Commission lawsuit, writing that "no assets listed on our platform are securities."
My Big Coin Conviction
The DOJ also announced the conviction on all eight counts against Randall Crater for duping investors of $6 million. Crater promoted a supposed cryptocurrency called My Big Coin, telling buyers that it was backed by $300 million in gold, oil and other assets. He faces a jail time of more than 100 years, and is set to be sentenced on Oct. 27.
Crater ran the scam between 2014 and 2017 through the My Big Coin's headquarters in Las Vegas. He also falsely claimed that he had a partnership with MasterCard and that My Big Coin could be exchanged with fiat or other virtual currencies.
The East Hamptons, New York, resident spent spending hundreds of thousands of his ill-gotten gains on antiques, artwork and jewelry.
A civil lawsuit against Crater brought by the Commodity Futures Trading Commission resulted in a 2018 ruling by a federal judge that virtual currencies are subject to federal oversight.
With reporting by ISMG's Rashmi Ramesh in Bangalore.