Ex-Coinbase Manager Settles SEC’s Crypto Insider-Trading Claims
Deal ends lawsuit closely watched for its focus on which digital assets are securities
WASHINGTON—A former manager at Coinbase Global COIN 7.47%increase; green up pointing triangle has reached a settlement with regulators over a novel cryptocurrency enforcement action without resolving a key question for the Securities and Exchange Commission and the crypto industry: which of the exchange’s digital assets are securities.
Ishan Wahi’s deal with the SEC ends insider-trading claims over the agency’s claims that his trading tips involved crypto assets that are actually securities. While Wahi won’t pay any financial penalties to the SEC, he was recently sentenced to two years in prison in a related criminal case.
At Coinbase, the largest U.S. cryptocurrency exchange, Wahi worked in a role where he knew which assets would be added to the trading platform. Those announcements typically boosted demand for newly listed tokens and led to a rise in their trading prices.
Wahi has admitted in criminal court to tipping off his brother, Nikhil Wahi, and college friend Sameer Ramani to token listings before they were made public. The SEC alleged that nine of the traded tokens were securities sold in violation of federal investor-protection laws. Tuesday’s deal doesn’t specify which tokens are securities but prohibits Ishan Wahi from denying the SEC’s allegations.
SEC Enforcement Director Gurbir Grewal suggested in a statement that the outcome supports the agency’s claims about Coinbase’s assets. “The federal securities laws do not exempt crypto asset securities from the prohibition against insider trading, nor does the SEC,” he said.
Ishan Wahi and his lawyers at Greenberg Traurig and Jones Day sought early dismissal of the case, arguing the digital assets aren’t securities. An attorney for Wahi declined to comment. Coinbase, which is facing the prospect of a regulatory lawsuit, also filed a brief in Wahi’s case disputing the SEC’s authority to regulate its business.
Because Coinbase is itself a target of an SEC enforcement probe, Wahi’s interests were aligned with his former employer’s, even though it fired him and cooperated with insider-trading investigations.
“We are disappointed the court will not have the opportunity to rule on important issues…that we raised in our amicus brief in the case,” a Coinbase spokesperson said.
The settlement terms were made public Tuesday in a filing in Seattle federal court, where the SEC filed its case. Nikhil Wahi also settled the SEC’s allegations and won’t pay a fine beyond the $892,500 he was ordered to forfeit in his criminal case.
Opposing the SEC in lawsuits like the one against Wahi has become the crypto industry’s best hope for beating back the commission’s campaign to regulate digital assets. The industry hopes federal judges will find that crypto is too different from traditional stocks and bonds to fall under rules written for Wall Street.
Issuers of stocks and bonds sold to the public typically must register those offerings with the SEC. The process requires an issuer to provide investors with audited financial statements and detailed disclosures about future business risks. Developers of cryptocurrencies don’t provide coin buyers with that amount of disclosure.
Had a judge ruled on those arguments at some stage in the lawsuit, the order could have supported or hurt the SEC’s attempt to classify many crypto assets as securities—and its ability to go after Coinbase.