Three people, including a former Coinbase Inc. employee, have been charged following an investigation into a cryptocurrency insider trading tipping scheme.

Former Coinbase product manager Ishan Wahi is alleged to have provided insider information to his brother, Nikhil Wahi, and a friend, Sameer Ramani, about upcoming Coinbase listings. The friend and brother are alleged to have then used that information to place trades on cryptocurrencies before they were listed on Coinbase.

Typically, small cryptocurrencies that are listed on Coinbase increase in value. By buying cryptocurrencies in advance of their being listed on Coinbase, the pair were able to sell their holdings at a considerable profit.

The U.S. Department of Justice alleges that Ishan, who in his role at Coinbase had access to a private channel that discussed among other things upcoming launch dates that Coinbase did not share with all employees, provided inside information on at least 14 occasions between June 2021 and April 2022. Nikhil Wahi and Ramani are said to have used anonymous Ethereum blockchain wallets to purchase cryptocurrency ahead of 14 separate Coinbase public listing announcements covering at least 25 different cryptocurrencies. The profit from the endeavors is said to be about $1.5 million.

The scheme was eventually discovered after a Twitter account well-known in the cryptocurrency community tweeted on April 12 that an Ethereum blockchain wallet “bought hundreds of thousands of dollars of tokens exclusively featured in the Coinbase Asset Listing post about 24 hours before it was published.” As it turned out, that wallet was being operated by Ramani.

Coinbase launched an investigation and said it would immediately terminate any employee involved and refer the matter to authorities. On May 11, Coinbase asked Ishan to appear at an in-person meeting on May 16, but instead of turning up, Ishan instead purchased a one-way ticket to India and told Coinbase that he was unable to attend the meeting. He was detained by law enforcement before boarding the flight.

The trio has been charged with wire fraud conspiracy and wire fraud.

“Although the allegations, in this case, relate to transactions made in a crypto exchange – rather than a more traditional financial market – they still constitute insider trading,” Federal Bureau of Investigation Assistant Director Michael J. Driscoll said in a statement. “Today’s action should demonstrate the FBI’s commitment to protecting the integrity of all financial markets – both ‘old’ and ‘new.’”

In response to the news, Coinbase did not disagree with the facts at hand but took umbrage with the trio being charged under securities law by the Securities and Exchange Commission. In a blog post, Coinbase Chief Legal Office Paul Grewal said that the specific laws do not apply because Coinbase does not list securities.

Grewal said the company disagrees with the SEC’s decision to file these securities fraud charges and cited Commodity Futures Trading Commission Commissioner Carlone D. Pham as saying that the charges were an example of “regulation by enforcement” by the SEC.

Photo: Coinbase