Coinbase is involved in insider trading again

TL: DR

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• The SEC has once again accused Coinbase of insider trading.This is coming after a former employee of the exchange platform was charged to court for wire fraud alongside two other people.
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• Coinbase has had several allegations of insider trading and taking advantage of sensitive information to make profits.
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• An example is when a crypto Twitter user, Cobie, discovered an ETH wallet that made token purchases and listed them on Coinbase a day after.
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• Other evidence of Coinbase's involvement in insider trading is also resurfacing online.
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• The defending attorney of the former employee has stated that the case should be thrown out as the tokens in question are not securities.
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• The Chief Legal Officer of the exchange has also written a blog post to explain in detail that the tokens involved are not securities.

In shocking news, there has been evidence of insider trading at Coinbase AGAIN. This is coming after the investigation into trades of UPI, and AVT tokens showed clear traces of insider trading.

This time, the allegations were made against a former employee of the exchange platform who was charged with wire fraud alongside two other individuals. According to U.S. prosecutors, the individuals planned to profit from the launch of new tokens on Coinbase before the public announcement.

The history of allegations on Coinbase

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This is not the first time Coinbase will be caught up in allegations of insider trading. In 2019, Coinbase was accused of insider trading when it launched XLM. This came after a tip from "someone" linked to the exchange showed that the exchange made some decent profit from the announcement. However, this recent allegation further stresses the point as the announcement of Aventus (AVT), and Pawtocol (UPI) saw the exchange make some profit.


The SEC believes that, for an organization that poses as the speculator, they seem to make some decent profit off these announcements. Moreover, evidence from the investigations showed that the "someone" was aware and ready for the announcement. Thus, made the most of the pump the announcement generated.

Other previous allegations against Coinbase

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In the wake of the recent allegations on Coinbase, there have been further revelations of more allegations on the exchange platform. An example is an accusation from a Twitter user (Cobie) who discovered that an Ethereum address highlighted as a Coinbase asset listing acquired thousands of dollars in tokens.


Another Twitter user, a crypto on-chain detective (Zachxbt), spoke about his discovery of a linked address that purchased some tokens before Coinbase announced the launch.


As you can infer from the data obtained, the exchange obtained the names of the tokens ahead of time. It is also very likely that the buyer worked on one or both projects before the announcements were made.

Present allegations against Coinbase

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Ishan Wahi, 32, a former Coinbase product manager, was arrested last month in Seattle on charges he disclosed confidential information to his brother Nikhil and mutual friend Sameer Ramani about new digital assets Coinbase would offer users.
Nikhil Wahi pleaded not guilty to the charge at his arraignment in Manhattan federal court before U.S District Judge Loretta Preska.

Prosecutors allege Nikhil Wahi and Ramani traded at least 14 times before Coinbase announced the asset acquisitions in June 2021 and April 2022 using Ethereum blockchain wallets. It is estimated that the announcements led to at least $1.5 million in illicit gains and a rise in the cost of the assets.

Ishan Wahi's attorney, David Miller, said this case did not involve securities or commodities and that insider trading needs to be dismissed. In addition, Miller says Coinbase tests new tokens before listing them publicly, so the information his client was accused of disclosing was not confidential.

The response of Coinbase to the allegations

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According to a blog post titled "Coinbase does not list securities, End of story," Coinbase's chief legal officer, Paul Grewal, denied fraud allegations against its former employee.


According to him, seven of the nine assets the SEC listed in its charges against Coinbase are not securities. He emphasized that Coinbase company has a rigorous process of analyzing and reviewing each of its listed digital assets before listing it on its exchange platform.


The matter of listing some tokens as cryptocurrencies or securities has been a contentious issue between regulators and crypto forms.
Recently, the SEC filed a suit against Ripple, a San Francisco-based blockchain company, alleging it should be treated as a security for its XRP cryptocurrency.

Historically, the Howey Test determined if an asset meets certain criteria to be considered a security. In the words of the SEC, security is a financial investment with a reasonable expectation of generating profit.

The SEC believes that Coinbase may have to classify some of its cryptocurrencies as financial instruments if it wants to remain an exchange.
It is a popular fact that Coinbase is more conservative about how tokens are listed than other exchanges.

For example, according to CoinGecko data, Binance and FTX list more than 300 coins, while Coinbase lists just over 200. Yet, the SEC is not convinced that Coinbase doesn't host unregulated securities. Coinbase, however, refutes this assertion.

The commissioner of CFTC, an organization that supervises foreign exchange markets, Commissioner Caroline Pham, also weighed in on the case Thursday, describing the case as a "striking example of 'regulation by enforcement.'


As Pharm stated, regulators need to be more critical than ever before.


Grewal corroborated this assessment as he wrote in the blog post that the SEC relies on one-off enforcement actions to bring all digital assets under its jurisdiction instead of drafting tailored rules inclusively and transparently.

Conclusion

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The outcome of this case is yet to be known as we keep our fingers crossed. This, however, calls for caution and critical assessment of tokens from regulators and crypto firms.

A close observation of the allegations against Coinbase shows a pattern that depicts either a worrying systematic approach to the announcement of tokens on the platform or insider trading. However, the Crypto market is a growing market. Hence we can only hope to learn from this.



Author: Gate.io Observer: M. Olatunji
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