The insider trading case involving the Wahi brothers and Coinbase is nearing its conclusion.
Ishan Wahi, a former product manager at crypto exchange Coinbase, and his brother Nikhil Wahi have agreed to settle the insider trading charges with the United States Securities and Exchange Commission (SEC).
On May 30th, the US SEC announced the news about settling with the Wahi brothers, providing some closure to a case closely followed by the cryptocurrency community.
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It is worth noting that the SEC filed insider trading charges against the brothers on July 21st, 2022. Eleven months after, the SEC seeks a final judgment in the US District Court of the Western District of Washington.
In particular, the agency is calling for the disgorgement of the profits acquired through these illegal trades, along with interest.
Addressing this issue, the SEC Division of Enforcement Director Gurbir Grewal asserted:
While the technologies at issue, in this case, may be new, the conduct is not. <…> The federal securities laws do not exempt crypto asset securities from the prohibition against insider trading, nor does the SEC.
In its lawsuit, the SEC declared that the Wahi brothers and another defendant, Sameer Ramani, had dealt in “crypto asset securities.”
The allegation sparked a widespread debate, as US Commodity Futures Trading Commission Commissioner Caroline Pham expressed her concerns over token categorization as securities. She referred to crypto-related decentralized autonomous organizations (DAOs) and their utility tokens, stating that the classification could “have implications beyond this single case.” Pham criticized the SEC’s approach as “regulation by enforcement.”
The Wahi brothers allegedly used inside information about nine upcoming listings of crypto assets on Coinbase for personal trading gains.
In April, the SEC announced having reached “an agreement in principle” with Ishan Wahi, who was later sentenced to 24 months in prison by the US District Court for the Southern District of New York on May 9th.
It was established that Ishan Wahi had made as much as $1.5 million from illegal trades. On the other hand, Nikhil Wahi was sentenced to 10 months imprisonment in January by the same court.
In February, the Wahi brothers filed a motion for the case’s dismissal, arguing that the SEC had improperly classified the tokens involved under the Howey test and major questions doctrine. If the proposed settlement gains court approval, the SEC’s claims’ validity won’t be determined.
The case has drawn significant attention, shedding light on the challenges faced by regulatory bodies to apply traditional securities laws to the rapidly evolving cryptocurrency space.