Coinbase Insider Trading Case Closed: A Settlement Has Been Reached, How Does It Affect the Industry?

The industry is caught in a "dilemma," with the SEC arguing that it is still actively considering its regulatory approach.

Written by: Bitcoinist

Source: Blockchain Knight

The SEC announced that former Coinbase product manager Ishan Wahi and his brother Nikhil Wahi have settled charges of insider trading. Ishan Wahi helped coordinate Coinbase's public listing announcement, which included information on Crypto assets available for trading.

Despite being warned not to trade on such confidential information, Ishan repeatedly disclosed to his friend Sameer Ramani the timing and content of the upcoming listing announcement.

Prior to these announcements, Nikhil Wahi and Ramani allegedly purchased at least 25 Crypto assets, nine of which were securities, and sold them for a profit shortly after the announcements.

As part of the settlement, Ishan and Nikhil agreed to be permanently barred from violating securities exchange laws and rules and they will pay recovery fees and prejudgment interest on the "ill-gotten gains," according to the SEC's announcement. In addition, the SEC decided not to seek civil monetary penalties against the Wahi brothers in light of their prison sentence.

In addition to the SEC charges, Ishan and Nikhil also pleaded guilty to conspiracy to commit wire fraud in the criminal proceedings. Ishan was sentenced to 24 months in prison and forfeited 10.97 Ether and 9440 Tether, while Nikhil was sentenced to 10 months in prison and forfeited $892,500.

In addition, SEC Director of Enforcement Gurbir S. Grewal emphasized in a statement that federal securities laws do not exempt Crypto asset securities from the prohibition on insider trading.

He also thanked the SEC staff for successfully resolving the matter: "While the technology involved in this case may be new, the conduct is not. We charge Ishan and Nikhil Wahi with tipping and trading securities based on inside information,** This is pure insider trading**."

Coinbase has filed a petition in federal court seeking to force the SEC to participate in rulemaking regarding digital assets. The petition alleges that the SEC unreasonably delayed responding to Coinbase's rulemaking appeal and decided not to participate in the process Coinbase requested.

The SEC did not deny that its delay in responding to Coinbase’s petition was unreasonable, and that an injunction would be justified if the agency decided not to participate in the rulemaking process. The SEC also argued that it is still actively considering its regulatory approach.

In addition, Coinbase believes that the SEC has no intention of participating in the rulemaking that Coinbase requires, which can be seen from the public statements of SEC Chairman Gary Gensler.

Coinbase’s position is that the Chairman’s repeated, clear statements regarding the Commission’s rulemaking plans are strong evidence that the SEC has no intention of participating in the rulemaking that Coinbase requires.

SEC has been criticized for not providing clear regulatory rules and effective communication to the Crypto industry.

In this case, Coinbase believes that the SEC’s failure to formulate rules that allow the industry to know the SEC’s criteria for judging whether digital assets are securities or provide a feasible registration path when necessary has left the industry in a “dilemma.”