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The SEC noted that Wahi and Nikhil purchased at least 25 crypto assets from Coinbase before listings, out of which nine were securities.
The United States Securities and Exchange Commission (SEC) counted another win in regulating the nascent crypto industry through a Coinbase Global Inc (NASDAQ: COIN) insider trading case. According to a press release from the SEC on May 30, former Coinbase product manager Ishan Wahi and his brother, Nikhil Wahi plead guilty to conspiracy to commit wire fraud. As a result, Wahi was sentenced to two years in prison and ordered to forfeit 10.97 ETH and 9,440 Tether USDT. Similarly, the US District Court for the Western District of Washington ordered Nikhil to forfeit $892,500 and sentenced him to 10 months in prison.
The SEC noted that Wahi and Nikhil purchased at least 25 crypto assets from Coinbase before listings, out of which nine were securities. Notably, the SEC filed the complaints on July 21, 2022, after auditing Coinbase on regulatory approvals. The SEC noted that Coinbase treated crypto listings as confidential and warned employees against insider trading. Reportedly, the SEC found out that the Wahi brothers indulged in insider trading against the company’s rules between June 2021 to April 2022.
“While the technologies at issue, in this case, may be new, the conduct is not. We allege that Ishan and Nikhil Wahi, respectively, tipped and traded securities based on material nonpublic information, and that’s insider trading, pure and simple,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “The federal securities laws do not exempt crypto asset securities from the prohibition against insider trading, nor does the SEC. I am grateful to the SEC staff for successfully working to resolve this matter.”
Coinbase and SEC Clashes Over Crypto Regulatory Scope
The SEC and Coinbase have not been reading the same thing regarding crypto regulations in the United States. Notably, Coinbase has accused the SEC of regulating the crypto industry through enforcement, which is slowly killing innovation in the country. Moreover, more crypto firms in the United States have been shifting focus to other friendly markets including Europe to secure their future growth prospects.
In a series of court proceedings, Coinbase filed a petition for a writ of mandamus requesting the court to ask the SEC to respond with a yes or no if it will undertake rulemaking for the cryptocurrency industry. According to Coinbase Chief Legal Officer, Paul Grewal, the public statements from the SEC chair Gary Gensler are not formal guidance or policy statements on the nascent cryptocurrency industry.
Today’s filing may be the first time when the SEC has formally explained in court its views on whether and how the SEC should create rules for the crypto industry. 2/7
— paulgrewal.eth (@iampaulgrewal) May 16, 2023
The SEC has also accused Coinbase of issuing unregistered securities through crypto listings and its products including staking programs. In its defense, Coinbase has noted that the SEC has acted in bad faith by allowing it to go public through the same services and charging it for wrongdoing later on.