The United States Securities and Exchange Commission (SEC) has reached an agreement in principle to resolve the insider trading case against a former Coinbase product manager, Ishan Wahi. The case, which has been ongoing since July 2022, accused Wahi and his brother, Nikhil Wahi, of insider trading, with the pair allegedly using confidential information obtained from Coinbase in order to profit from new listings of tokens, totaling more than $1 million.
In a filing on April 3, the SEC said that it had reached an “agreement in principle” with Wahi, adding that any settlement recommended by SEC staff must be reviewed within the SEC and approved by the SEC’s Commissioners before it may be submitted to the court for approval, a process that can take several weeks. The case against the Wahi brothers was one of the first involving insider trading of a major US crypto exchange before platforms including FTX and Celsius declared bankruptcy.
The original complaint alleged that Wahi had access to information on listing cryptocurrencies on exchanges controlled by Coinbase in his position as a product manager from August 2021 to May 2022. He then passed on that information to his brother or Ramami to invest in the tokens before the Coinbase listing was expected to cause a price jump.
Notably, in the context of the SEC cracking down on crypto, the case saw the regulator label nine of the tokens as “crypto asset securities” falling under its purview. The SEC later issued a Wells notice, warning of potential enforcement action, to Coinbase itself in March. The exchange’s chief legal officer, Paul Grewal, said the notice came despite many discussions with SEC representatives.
The case against the Wahi brothers has received a lot of attention from the industry because there is no legal precedent for proving insider trading of crypto assets, especially since there is still no official word on which coins and tokens, if any, qualify as securities. However, the SEC’s move to resolve the case against Wahi suggests that it is willing to take action against individuals who violate securities laws, even in the absence of clear regulatory guidance on the matter.
Coinbase’s role in the case has also been closely scrutinized, with the exchange filing a 35-page amicus brief on April 4 arguing for the case to be dismissed. In it, Coinbase calls for more constructive engagement with the SEC and for the commission to craft a sound and sustainable crypto regulatory framework. Coinbase has been a vocal advocate for clearer regulatory guidance in the crypto space, and the company’s chief legal officer has argued that regulatory uncertainty is holding back innovation in the industry.
Overall, the SEC’s move to reach an agreement in principle to resolve the case against Ishan Wahi sends a clear signal to the industry that it is willing to take action against individuals who violate securities laws, even in the absence of clear regulatory guidance on the matter. The case also highlights the need for clearer regulatory guidance in the crypto space, with industry participants calling for a more constructive dialogue with regulators in order to craft a sound and sustainable crypto regulatory framework. As the industry continues to evolve and mature, it is likely that we will see more cases like this, highlighting the need for a more coherent and consistent regulatory approach to the crypto space.