Prosecution of executives for insider trading is not necessarily headline news – except when the prosecution involves the SEC wading deep into the waters of defining crypto as a security enroute to securing two guilty pleas.
Former Coinbase Global Inc. product manager Ishan Wahi pleaded guilty on Feb. 7 to two counts of wire fraud conspiracy. Wahi bought tokens based on non-public knowledge that Coinbase planned to allow users to trade those particular assets, a decision all but guaranteed to immediately drive up their value, thus allowing Wahi to sell for at least $1.5 million in profit, according to prosecutors. Ishan Wahi agreed to forfeit his crypto assets and not to appeal any sentence below 46 months in prison. He is scheduled for a sentencing hearing on May 10.
Wahi also admitted to providing insider information to his brother, Nikhil Wahi, and a college friend, who is still at large. Ishan Wahi Nikhil Wahi previously pled guilty to a single charge of conspiracy to commit wire fraud (USA v. Wahi, et al., No. 1:22-cr-00392). He was sentenced last month to 10 months in prison and ordered to forfeit nearly $900,000 in assets.
These convictions come within weeks of the New York Department of Financial Services’ recent announcement of a $100 million settlement with Coinbase, for purported Bank Secrecy Act/Anti-Money Laundering compliance failures.
Most relevant to the crypto community is that in the Wahi case, as well as another crypto-related case, OpenSea, the U.S. Securities and Exchange Commission made the bold (and some might argue long expected or even overdue) move of defining several crypto tokens as securities.
The Wahis continue to fight the SEC civil action, arguing crypto tokens are not securities under the law. To that end, on Feb. 6, they moved to dismiss the case, accusing the SEC of overreaching. In general, the consensus seems to be that the SEC likely has it right.
The Coinbase and Wahi cases, along with others such as OpenSea and Bittrex, make clear federal and state regulatory oversight – arguably long overdue for blockchain and crypto – has finally arrived, with some hoping it can prevent another FTX or other major crypto player failure.
As digital currency becomes increasingly mainstream, with an expanded role in corporate transactions, it is critical for business owners and financial institutions across all industries to keep abreast of legal and compliance issues.
