Saturday, September 23, 2023

Coinbase’s Insider-Trading Case


The US government is pursuing a former employee of the cryptocurrency exchange Coinbase. He allegedly tipped off in the first-ever case of insider trading involving cryptocurrencies along with two other individuals.

Even if the claimed scheme was a one-off, its consequences could have far-reaching effects.

United States Department of Justice (DOJ) criminal charges were filed in Manhattan federal court. In contrast, A civil securities fraud complaint was filed by the US Securities and Exchange Commission in a federal court in Seattle.

While the SEC is supposedly looking into a disloyal Coinbase employee, it also asked a federal judge to decide. It is whether nine digital currencies linked to the claims are unregistered securities. Should the judge rule in favor of the SEC, it could lead to increased responsibility for the cryptocurrencies at issue. It will also affect the exchanges that support their trade.

Coinbase Inside Trading

Former Coinbase manager Ishan Wahi, his brother Nikhil Wahi, and their buddy Sameer Ramani were all charged with felony wire fraud and conspiracy. Justice Department and SEC made allegations against them.

According to the government’s case, Wahi forewarned his brother and a friend. This is about the cryptocurrency transactions that would soon be broadcast on the Coinbase website. It is done so people can make a purchase before the items are officially listed for sale. Nikhil Wahi and Ramani have been accused of generating over $1.1 million through insider trading.

These cryptocurrencies are Amp, Rally, DerivaDAO, XYO, Rai Governance Token, LCX, Power Ledger, DXF Finance, and Kromatika.

The Department of Justice is taking legal action for insider trading under federal wire fraud legislation. Still, the SEC will need to go further to succeed in its case. A securities law professor at the University of Michigan Law School, Adam Pritchard, told Quartz via email that the SEC only has jurisdiction if the disputed assets are securities. According to the complaint, cryptocurrencies fail the Howey test for “investment contracts” established by the US Supreme Court in 1946.

The news release issued by the SEC detailing the allegations it was bringing. It went straight into the more fundamental questions raised by the agency’s activities.

Very Appealing Argument

SEC enforcement chief Gurbir S. Grewal said in a press release announcing the accusations that they are not concerned with labels. However, they were concerned by the economic realities of an offering. Here, the facts confirm that some of the disputed crypto assets were securities. Also, the defendants, as claimed, engaged in standard insider trading before their listing on Coinbase. Investors can rest easy knowing that they will maintain a level playing field.

In June, the US government gave hints that it intended to step up crypto enforcement. At that time, it filed federal wire fraud and money laundering charges against a former employee of OpenSea, the widely used NFT marketplace. The SEC’s involvement shows that SEC chairman Gary Gensler, is willing to take action following the filing of identical charges. That was against the former Coinbase employee and his alleged co-conspirators.

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Mary Santos
Mary Santos
Mary Santos has a degree in economics and after a successful career as an investment analyst, she found an interest in Cryptocurrency. Mary enjoys finding the latest scoop on crypto news.

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