The U.S. Department of Justice on July 21 arrested former Coinbase product manager Ishan Wahi, and his brother Nikhil Wahi, and charged Sameer Ramani with alleged wire fraud.
The charges were brought in connection with what the DOJ described as the “first-ever cryptocurrency insider trading” scheme. Ramani is on the run from the authorities.
Damian Williams, U.S. Attorney for the Southern District of New York, said in the DOJ statement:
“Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street.
And the Southern District of New York will continue to be relentless in bringing fraudsters to justice, wherever we may find them.”
According to the allegations, the defendants conducted “illegal trades” in at least 25 different cryptocurrencies and earned approximately $1.5 million.
In the press release, the DOJ said the value of cryptocurrencies “typically significantly increased” after Coinbase announced the potential listing of the assets. Therefore, Coinbase kept all information related to the public listing announcements confidential and prohibited employees from sharing such information and providing investment tips.
In October 2020, Ishan joined Coinbase as a product manager in the asset listing team, the press release said. In his role, Ishan had knowledge of which assets the exchange was planning to list and the timing of their public announcements, the press release added.
The DOJ alleged that between June 2021 and April 2022, Ishan leaked confidential information about coin listing announcements to either his brother Nikhil or his friend and associate Ramani. Acting on the tips by Ishan, Nikhil or Ramani could buy the assets in advance using anonymous Ethereum wallets and sell for profit once the price increased after the Coinbase listing announcement.
According to information provided by Ishan, Nikhil and Ramani took advantage of confidential tips for at least 14 Coinbase listing announcements involving at least 25 different assets, the press release said. To obscure their trades, Nikhil and Ramani used centralized exchange accounts in the name of others and transferred funds and profits to multiple anonymous or new Ethereum wallets, the DOJ said.
Catching the criminal
According to the DOJ statement, it was a few large trades just before Coinbase announced that it was considering listing a handful of tokens on April 11, 2022, that triggered investigations.
On April 12, Cobie, a popular crypto personality, highlighted in a tweet that someone bought over $390,000 worth of assets that featured on the Coinbase announcement, just 24 hours before the list was made public. The trading in the wallet referenced by Cobie was conducted by Ramani, the DOJ statement said.
Coinbase launched an investigation during which, the exchange’s director of security operations emailed Ishan on May 11 to appear for an in-person interview on May 16. Ishan confirmed that he would attend but a day prior to the scheduled interview, Ishan purchased a one-way flight to India scheduled to depart just before the interview.
However, Ishan falsely told colleagues that he had already departed for India on May 15, the DOJ statement said. It added that, In the hours between the flight ticket booking and his scheduled departure, Ishan called and messaged Nikhil and Ramani, about the Coinbase investigation and sent a picture of the messages he had received from the director of security operations.
Ishan was apprehended and prevented from leaving the country by authorities before he could board his flight.
The statutory maximum sentence for each count of wire fraud conspiracy and wire fraud is 20 years. However, it should be noted that the sentencing of the defendants, if found guilty, would be handed down by a judge.
The SEC’s separate charges
The Securities and Exchange Commission (SEC), which assisted in the investigation, initiated civil proceedings against the defendants on July 21 on charges of securities fraud.
Coinbase noted in its blog:
“No assets listed on our platform are securities, and the SEC charges are an unfortunate distraction from today’s appropriate law enforcement action.”