It appears that a crypto Twitter user named Cobie influenced the FBI into bringing an insider trading case. The US Attorney’s Office for the Southern District of New York is bringing an indictment against a former Coinbase employee, who allegedly tipped his brother and his buddy about which assets were about to list on Coinbase — leading to $1.5 million in “realized and unrealized gains, ”according to the indication.
This is the first insider trading case involving cryptocurrency markets, says US Attorney Damian Williams, in a statement.
Ishan Wahi, the Coinbase employee who was charged, was involved in listing new crypto assets on Coinbase’s exchange. When Coinbase announces that a new token will be listed, that token often pops in value — which means that the company told employees to keep silent about Coinbase’s listing plans. Wahi started working for Coinbase in October 2020. In August 2021, he was allowed access to a channel where Coinbase employees discussed listing new projects with details like “exact announcement / launch dates + timelines.”
According to the indictment, Wahi told his brother and friend which purchases to make just before those tokens were announced as being listed by Coinbase. Nikhil Wahi and Sameer Ramani allegedly bought at least 25 assets in advance of at least 14 Coinbase listing announcements.
On April 12th, Cobie tweeted, “Found an ETH address that bought hundreds of thousands of dollars of tokens exclusively featured in the Coinbase Asset Listing post about 24 hours before it was published, rofl.” According to the indication, Cobie was tweeting about a wallet owned by Ramani. On April 13th, Coinbase’s chief security officer replied to the tweet to say the company was investigating.
In May, Wahi received an email saying he should attend an in-person meeting as part of Coinbase’s investigation. In response, I have booked a one-way ticket to New Delhi, India. He also called and texted his brother and friend about the investigation. He was stopped by law enforcement before he could board his flight and was found to be carrying “three large suitcases, seven electronic devices, two passports, multiple other forms of identification, hundreds of dollars in US currency, financial documents, and other personal effects ,” according to the indication.
Coinbase initially made a blog post in April, probably as a follow-up to their tweet, saying that the company’s goal is to “create a level playing field for all the new assets being created in crypto.” In the post, Coinbase notes that its employees are aware of concerns that “some market participants may be taking advantage of information from our listings process.” It also notes that Coinbase employees may “wittingly or unwittingly” leak.
When I tweeted the “insider addr” tweet, I had been tweeting for months about how Coinbase listings/frontrunning/token choices had become a huge mess.
Coinbase “frontrunning” was widely known and acknowledged within CT.
Now, Coinbase plays “hero” catching the ~evil fraud~ ! pic.twitter.com/3zBFXXkAvS
—Cobie (@cobie) July 21, 2022
Today, Coinbase updated its blog post to make sure everyone knew that Coinbase does not consider tokens to be securities because I guess that’s what’s important to them. Not really:
We understand that the SEC has separately filed securities fraud charges related to this wrongdoing today. The DOJ did not charge securities fraud. No assets listed on our platform are securities, and the SEC charges are an unfortunate distraction from today’s appropriate law enforcement action.
So what have we learned here, friends? First of all, don’t do illegal things. Second, don’t do them on a public blockchain where anyone can look. Third, Coinbase definitely reads crypto Twitter. Fourth, so do the feds. Fifth, when one of your employees is indicted for wire fraud and conspiracy to commit wire fraud, the most important time to note that tokens aren’t securities is right after the indictment is unsealed.