Coinbase ex-employee and brother settle insider trading charges with US SEC

Coinbase (COIN) exchange's former product manager Ishan Wahi and his brother Nikhil Wahi have agreed to settle insider trading charges filed by the United States Securities and Exchange Commission (SEC),eight weeks after reaching an"in-principle agreement to resolve the case.

Also read: Coinbase former employee reaches ‘in principle agreement’ with SEC to resolve insider trading case

Coinbase exchange’s Wahi brothers settle with SEC

Coinbase exchange’s Wahi brothers have reached a settlement with the SEC in insider trading charges, according to a May 30 announcement. The development comes after the agency filed a motion for final judgment in the US District Court of the Western District of Washington.

As reported in April, Ishan and Nikhil Wahi were accused of insider trading in a case filed on July 21, 2022, by the SEC and the Department of Justice (DOJ). However, in the April 2023 update, it was revealed that the SEC had reached “an agreement in principle” with former Coinbase product manager Ishan Wahi, who had been sentenced to two years in prison by the US District Court for the Southern District of New York on May 9. The sentences came after it was determined that Wahi had made up to $1.5 million through illegal trading. His brother, Nikhil, was sentenced to ten months imprisonment in January 2023 by the same court.

SEC lawsuit against the Wahi brothers

According to the agency’s lawsuit, the Wahi brothers and a third defendant, Sameer Ramani, had traded in crypto asset securities. An excerpt from the filing reads:

They [Wahi brothers] used knowledge of at least nine crypto assets that would be listed on Coinbase in the future to purchase before listing.

The allegation fueled much controversy, with commissioner Caroline Pham of the US Commodity Futures Trading Commission (CFTC) calling the SEC’s actions “regulation by enforcement” and warning that:

Classifying tokens “that could be described as utility tokens and/or certain tokens relating to decentralized autonomous organizations (DAOs) could have implications beyond this single case.

The Wahis had filed a motion to dismiss the case in February on the grounds that the SEC wrongly classified the tokens in question in the case. The brothers based their argument on the Howey test and major questions doctrine.

Notably, the major questions doctrine says an agency cannot bring about a major policy without clear statutory authorization. 

SEC and Wahi brothers reach a settlement

However, in the latest development, the two have reached a settlement.

SEC’s Division of Enforcement director Gurbir S. Grewal says, “While the technologies at issue, in this case, maybe 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.” He added:

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. 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.

Notably, the settlement remains subject to court approval. If it passes, the justifiability of the regulator’s claims will not be decided. This means that the settlement puts an end to the court case, which was set to answer the question of “whether the nine of the cryptocurrencies at the heart of the case were indeed securities,” as the SEC claimed.

Notably, in his initial response to the SEC case, Ishan Wahi insisted that those tokens were not securities.

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