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On July 21, the Justice Department charged three people in the first cryptocurrency insider trading case. Ishan Wahi, former Coinbase product manager, would have shared confidential information with brother Nikhil Wahi and his friend Sameer Ramani.
On the same day, Coinbase CEO Brian Armstrong posted a series of messages on Twitter stating that the exchange was actively monitoring illegal activity. Not everyone is happy with the answer, with some in the cryptocurrency community criticizing the ace that has employed Coinbase to gain recognition over the past year.
Ishan Wahi started working as a product manager at Coinbase in October 2020, where he was involved in bringing new cryptocurrencies to the exchange. At least from August 2021 to May 2022 he was a member of Coinbase’s private messaging channel for employees directly involved in the registration process. In this channel, employees discussed new digital asset offerings, including release times and dates.
Due to the popularity of the exchange, the value of cryptocurrencies often increases after Coinbase has announced their listing. There is even a term that defines it: “Coinbase effect”. Coinbase prohibits employees from sharing or sharing non-public information such as announcements of upcoming deals.
Ishan Wahi reportedly referred to Nikhil Wahi and Sameer Ramani at least 2022 times from June 14 to April 2021. He informed them of at least 25 cryptocurrencies Coinbase wanted to list. They bought these digital assets using anonymous cryptocurrency wallets. Overall, the scam, dubbed the first, generated a profit of approximately $ 1.5 million.
Evidence of the scheme first surfaced in April 2022. Ramani bought several cryptocurrencies that Coinbase included in a new listing announcement on April 11, 2022. The next day, Twitter user Cobie tweeted about the purchases. and how it went just before Coinbase’s announcement.
An attempt to escape from the country
Following Coinbase’s investigation, the head of security operations contacted Wahi and ordered him to attend an in-person meeting on May 16. But prior to that date, Ishan Wahi had purchased a one-way flight to India, which was scheduled to depart shortly before the meeting. He also contacted Nikhil Wahi and Sameer Ramani to inform them of the investigation.
Law enforcement officers arrested Ishan Wahi before he could board a flight to India. He faces two counts of conspiracy to commit computer fraud and two counts of computer fraud. Each charge carries a maximum penalty of 20 years. The bail was set at $ 1 million and he was ordered to turn over his passports on his first appearance in federal court.
Nikhil Wahi and Sameer Ramani were charged with conspiracy to commit cyber fraud and conspiracy to commit cyber fraud. Nikhil Wahi has been arrested and Sameer Ramani is still a fugitive.
Prevention of insider trading is essential
This is the second case of insider trading involving Web3 technology in as many months. In June, the Justice Department indicted the former director of insider trading at OpenSea. OpenSea is one of the most popular places to buy and sell non-fungible Eton (NFT).
It’s really cool to see people face the consequences of cryptocurrency insider trading. This is a universal problem that affects all investors. The scam also prompted Coinbase to change the way cryptocurrencies are listed.
The fact that Coinbase took so long to realize is worrying, and the exchange has rightly been criticized for it. Coinbase claims to actively monitor this type of illegal activity. But insider trading lasted nearly a year and was only discovered when a Twitter user spoke up. By the way, this is not a pretty picture for Bitcoin’s online trading system, which is considered to be one of the best cryptocurrency exchanges.
While the consequences of cryptocurrency fraud are always welcome, these two examples are just the tip of the iceberg. Hopefully, they lead to industry best security practices, because the daily retail investor is the one who suffers the most from these scams.