Brother of major cryptocurrency exchange employee convicted of insider trading
Nikhil Wahi, brother of former Coinbase manager Ishan Wahi, pleaded guilty in September to one count of conspiracy to commit fraud. Now, in a January ruling, US District Judge Loretta Preska has sentenced Wahi to ten months in prison. Accordingly, that’s a real sentence for conducting insider trading using kinship relationships on a top cryptocurrency exchange. We tell you more about the situation.
Last year, Ishaan Vahi, as an employee of a cryptocurrency exchange in San Francisco, provided information about an upcoming token listing on Coinbase to his brother Nikhil Vahi and his friend Samir Ramani. That is, they have learned the list of coins that will soon appear for trading on the popular trading platform.
As a reminder, listings of digital assets on prominent cryptocurrency exchanges are traditionally a positive development. When it comes to a relatively new blockchain project, such an event adds recognition to its team. However, it is mandatory for major trading platforms to investigate new projects. And if they make it to an exchange, it's potentially a good product.
If a known token is listed, it gets extra liquidity, trading volumes and interest from market participants anyway.
Also, such an event most often ends up increasing the value of the crypto-asset – albeit sometimes in the short term. Therefore, closed information about upcoming listings allowed scammers to buy coins in advance and dispose of them at a tangible profit after the relevant news was released.
Cryptocurrency fraudsters
Insider trading is an illegal activity. The same applies to so-called frontrunning, where users try to gamble on other people’s large trades that are able to move the market.
Examples of insider trading in cryptocurrency
The aforementioned scam is insider trading by Ishan’s brother and his sidekick Samir Ramani. Knowing in advance which cryptocurrency would be added to the exchange’s trading pairs, they purchased it and made money from the price rise after listing.
What’s also special about the incident is that local prosecutors in the Waha case described the trial as the first ever insider trading case involving cryptocurrencies. The total profits of the three accused fraudsters exceed the $1.1 million mark. However, Ishaan Wahi did not plead guilty at the end of the trial.
Coinbase
Coinbase appears in yet another negative news this week. According to Decrypt sources, the crypto-exchange has announced another round of layoffs of its employees, citing unfavourable market conditions. In an 8-K filing with the US Securities and Exchange Commission (SEC), the company said it will reduce its headcount by around 950 people as a result of restructuring.
The costs, including severance payments, could amount to as much as $163 million. The layoffs are expected to be completed by the second quarter of 2023. Coinbase CEO Brian Armstrong has already commented on the exchange’s decision. Here’s his rejoinder.
I have made the difficult decision to reduce our operating costs by about 25 percent for the quarter, which includes laying off about 950 people. All team members who will be affected will be informed today.
It should be noted that layoffs at cryptocurrency companies are nothing new today. Last week, for example, cryptocurrency exchange Huobi announced a 20 percent cut. On the same day, the Genesis trading platform shared plans to cut 30 percent of its staff.
The reason for the cuts is overly aggressive recruitment in the bull run stages, i.e. market growth. Usually, exchanges and other blockchain companies make huge profits in such an environment, so experts do not think much about the impact of hiring. But once the market turns around, hiring is a big problem, as companies' revenues fall disproportionately.
Coinbase CEO Brian Armstrong
As of September 2022, Coinbase had an estimated 4,700 employees, with the giant having already undergone an 18 per cent reduction in June.
According to the platform’s chief executive, the crypto market has been affected by numerous bankruptcies of various platforms, with the effects still weighing heavily for the foreseeable future. Coinbase, while “well capitalised”, still needs to preserve cash. Armstrong expects more clarity from regulators after the FTX collapse – recent developments “will ultimately benefit Coinbase greatly.
We believe the case will be an important warning to other representatives of blockchain companies who are pondering the possible use of insider knowledge for their own benefit. It can also be assumed that the lawsuit was a kind of recognition of the decentralised asset industry. While this is a negative development here, somehow the legal framework of one of the world's largest states does not welcome such action - and that includes coins. Consequently, digital assets are becoming more visible across the planet.
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