The cryptocurrency world is a ruthless one. For some, it is lawless, which is why SEC boss Gary Gensler constantly refers to the world of cryptocurrencies as the Far West. You may have noticed that Gensler is careful to distinguish between Bitcoin and cryptocurrencies when he says this because they are two different things.
On the one hand, you have the real revolution, and on the other hand, the Far West where anything goes. A world that reminds us from time to time of the movie “The Good, The Bad, and The Ugly” by the famous Sergio Leone.
We have just had a new episode in this series with Ishan Wahi, a former Coinbase product manager, who has just been arrested with two members of his entourage for insider trading and wire fraud. The SEC took the opportunity to get involved in the case in a way that hurt the cryptocurrency giant.
The Department of Justice wants to severely prosecute this case to fight fraud
The secret of this new episode of “The Good, The Bad, and The Ugly” was lifted on July 21, 2022, by the Department of Justice (DOJ):
A former executive, and product manager at Coinbase, his brother Nikhil Wahi and a friend named Sameer Ramani are accused of insider trading and are alleged to have made $1.5 million from their crime.
The modus operandi is quite simple. Our crooks used centralized exchanges with assumed names. Then they transferred the funds to anonymous wallets on the Ethereum blockchain. In the press release publicly unveiling the case, Damian Williams, U.S. Attorney confirms and argues the importance of severely prosecuting this case to fight fraud:
“Today’s charges are a further reminder that Web3 is not a law-free zone. Just last month, I announced the first ever insider trading case involving NFTs, and today I announce the first ever insider trading case involving cryptocurrency markets. 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.”
Insider trading that netted $1.5 million
Ishan Wahi, our accused was in charge of asset listing at Coinbase since October 2020. From August 2021 to May 2022, he was one of the employees who therefore knew the future launch dates of the cryptocurrencies listed and supported by Coinbase. He had access to the confidential discussions of the company. Good prince, he informed his two accomplices. This allowed them to buy cryptocurrencies at low prices before their launch.
The scammers started to get noticed on April 11, 2022. A new listing of 10 cryptocurrencies was then expected on Coinbase. At the time, Cobie, a crypto influencer, reports on an Ethereum address that had purchased hundreds of thousands of dollars of a so-called proprietary cryptocurrency:
After this tweet from Cobie, Coinbase responded publicly on Twitter announcing to launch of an investigation. Subsequently, the American giant confirmed on its Medium account, its strict policy on respecting the secrecy of confidential information.
In this sense, the director of security operations of Coinbase called Ishan Wahi on May 11, 2022. The purpose of the call? A meeting on May 15, 2022. The investigation reveals, however, that the alleged culprit confirmed his presence and then left for India. Always a good prince, he of course took care to warn his accomplices. On May 16, 2022, Ishan Wahi and his brother were arrested.
In total, 14 cryptocurrencies were bought in this way.
Coinbase claims innocence against the SEC
The SEC is very interested in this case with the objective why not tapping on the fingers of Coinbase. The American stock market regulator has decided to open a parallel investigation against Coinbase. Indeed, the latter would not have respected the registration of assets as a security.
The number one cryptocurrency exchange platform in America would not have respected the anti-fraud laws essential for the DOJ. This debate, which echoes the setbacks of Ripple and its XRP cryptocurrency, is deplored by Coinbase, which then decides to open a petition for the SEC to explicitly define a legal framework around crypto-currencies:
“Cryptocurrencies represent the next wave of innovation within the markets themselves - and any country that encourages this innovation while ensuring the safety of investors will reap huge benefits. We need the SEC to once again write the rules that will unlock the potential of America's financial markets, this time fueled by the benefits provided by crypto.”
The cryptocurrency platform Coinbase thus laments the lack of flexibility of traditional finance. The latter does not take into consideration the parameters and fundamental principles of decentralized finance. Beyond the fact, this scam will finally have highlighted the shortcomings of an American regulation that is divided and indecisive and does not set a clear legal framework for cryptocurrencies. Something that probably prevents a greater adoption of the sector, as many actors of traditional finance are waiting for this before launching themselves more deeply into this field.
In Bitcoin We Trust Newsletter: Everything around Bitcoin, Blockchain, and the cryptocurrency market
