Ex-Coinbase Employee Moves To Dismiss Insider Trading Case

The SEC is using a “brute-force approach” to obscure legal deficiencies in its complaint against them,” counsel for the Wahi brothers said

article-image

Blockworks exclusive artwork by Axel Rangel, modified by Blockworks

share

Former Coinbase product manager Ishan Wahi and his brother are looking to get the insider trading charges leveled against them dropped, as their lawyers argue they did not have the “culpable state of mind necessary to commit securities fraud.”

A court filing released Tuesday showed lawyers arguing that the Securities and Exchange Commission (SEC) is trying to gain regulatory jurisdiction over the crypto industry via the enforcement action against the former Coinbase employee and his 26-year-old “kid brother.” 

The SEC’s complaint alleges that the Wahis illegally traded “securities” under the Exchange Act, but cryptoassets cannot be deemed securities as they are not “investment contracts,” the lawyers said. As per the Howey Test, an asset can be classified as a security if it is determined to be an investment contract.

“But here there are no contracts, written or implied,” they wrote. “The developers who created the tokens at issue have no obligations whatsoever to purchasers who later bought those tokens on the secondary market. And with zero contractual relationship, there cannot be an “investment contract.” 

The Coinbase insider trading case is expected to be a landmark one, as it could determine which cryptoassets can be termed as securities. Coinbase itself has denied that the nine tokens the brothers traded — AMP, DerivaDEX, DFX Finance, LCX, Kromatika, Powerledger, Rally, Rare Governance Token and XYO — are securities.

The Wahis’ counsel further stated that neither the SEC nor Coinbase’s legal team considered the tokens at issue to be securities before the allegations were put forth. And so, the SEC should arrive at that decision before consequences are imposed, they added.

“The SEC’s parade of one-off enforcement actions against the likes of Kim Kardashian, DJ Khaled, Floyd Mayweather Jr., and now Ishan and Nikhil Wahi is—by contrast—a process designed to produce more heat than light,” they said.

Both brothers, along with their friend Sameer Ramani, were accused of trading at least 25 cryptoassets based on confidential information between June 2021 and April 2022, bagging them profits worth over $1.1 million.

Notably, Ishan Wahi and Nikhil Wahi had both initially pleaded “not guilty” to wire fraud, but Nikhil Wahi resorted to a plea bargain in September.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

Unlocked by Template.png

Research

RTK networks are critical to enabling a world of ubiquitous autonomous drones, vehicles, and industrial robots. We believe the GEOD token enables both a cost and product advantage for the GEODNET RTK network, which will allow it to out-compete multi-billion dollar incumbents Trimble and Hexagon.

article-image

As EIP-4844 “blobs” transform the economics of Ethereum layer-2s, a growing debate pits long-term scalability against immediate ETH value

article-image

Prosecutors argued that FTX co-founder Gary Wang cooperated in their case against former FTX CEO Sam Bankman-Fried

article-image

The two largest crypto exchanges respectively run the second- and sixth-largest Solana validators

article-image

MicroStrategy’s bitcoin buying has exploded — it now holds 1.7% of the asset’s circulating supply

article-image

The MiCA era will reward the prepared and punish the rest

article-image

The market is, presumably, confused about what a Trump win means for the social media company