Wow, the indictment references [this tweet][1] that caused Coinbase to investigate the matter and ultimately led the defendant in being caught at the airport before trying to leave the country.
> On May 11, 2022, Coinbase’s director of security operations emailed ISHAN WAHI to inform him that he should appear for an in-person meeting relating to Coinbase’s asset listing process at Coinbase’s Seattle, Washington office on Monday, May 16, 2022. ISHAN WAHI confirmed he would attend the meeting.
> On the evening of Sunday, May 15, 2022, ISHAN WAHI purchased a one-way flight to India that was scheduled to depart the next day shortly before ISHAN WAHI was supposed to be interviewed by Coinbase. […] Prior to boarding the May 16, 2022 flight to India, ISHAN WAHI was stopped by law enforcement and prevented from leaving the country.
For some nuance, though, partly this has to do with lack of SEC enforcement on crypto as a security. My opinion then would have been that this should be insider trading, crypto should be classified as a security, and also that I wasn’t sure the SEC would classify this as insider trading.
Since the definition of insider trading is kind of, “whatever the SEC enforces”, it’s possible to believe that this is a security that was insider traded and also that it’s not “insider trading” in the only meaningful way (the SEC way.)
Yeah I was about to say something similar. Our existing insider trading laws don't quite fit this situation, which is why they're being charged with "wire fraud conspiracy" instead of something more specific.
The DoJ isn't prosecuting them for `Insider Trading`. It's prosecuting them for Wire Fraud against Coinbase. Wire Fraud doesn't require there be a security involved at all.
Thank you, can you elaborate a bit? Insider trading involves trading of a company's securities, correct? Because crypto isn't a security in the SEC's eyes, this doesn't apply?
How are they getting them on wire fraud charges? The texts back and forth describing the scheme?
The way I understand it, there is a lot of controversy over whether or not crypto is a security. However, Insider Trading is a type of Fraud, and proving fraud does not require it to be insider trading and does not require crypto to be a security. What makes it Wire Fraud is just that it took place "over the wire", ie on the internet.
I think the key to understanding how this is fraud is the fact that they acted on privileged Material Information to the disadvantage of their employer, not the exact nature of how they profited off it. Essentially, they stole company secrets.
If you read the actual SEC filing, you'll note that they're only filing for 7 of the alleged 25 coins that he traded. [1] Even the SEC agrees that this was not insider trading in all 25 instances.
"Throughout the relevant period, Nikhil and Ramani repeatedly traded ahead of Coinbase listing announcements, trading in at least 25 tokens. At least seven of the listing announcements described above involved crypto asset securities"
No. Suspects are often arrested on a subset of the criminal charges with which they will ultimately be indicted. Even in more serious crimes like mass shootings, prosecutors will press charges on only a few of the homicide counts at first. This is common practice for prosecutors.
This isn't about the SEC at all. Arresting on a subset of eventual charges is something that nearly all prosecutors do, and for a large set of very good strategic reasons.
I think you'd be hard-pressed to find many examples of high-profile cases where the original arrest was based on all possible charges.
Yeah, I'm not arguing they don't do that. This is one of those cases where arguing the negative without clearly stating your argument makes things easy but not particularly useful.
What argument are you presenting instead? Because he was charged for 7 instances of security fraud we should assume that all 25 are securities fraud? Regardless of whether the SEC eventually charges all 25, they've clearly decided to differentiate them all on some metric (otherwise, they would've charged them all at the same time).
Or maybe the SEC considers all of them securities but thought that they had the strongest case for these seven and didn't want the distraction of arguing about the other 18. But yeah, would be interesting to see the list.
If SEC considers any of them securities, it's very strange for them to go after a single guy at Coinbase and not the entire company, since they've just declared them an illegal securities exchange.
(As opposed to an illegal commodities exchange for bitcoin.)
This will be the central issue of the case. It'll be interesting! Will Coinbase step in to defend this guy who they were going to fire, just to prove that they don't list securities?
I think maybe it's only strange if you assume the SEC has unlimited money and time. Grandparent comment says it better, but they're likely focusing on cases they think are pretty clear-cut.
I'm interested in cases like Rari where there was a decentralized governance mechanism but it was dominated by a "core team", that feels like it encompasses a larger slice of the space than I would have expected. Many of the others are deeply unsurprising though, they are US corporations, took VC investments, have active managerial teams which are all employees of that corp, and advertise themselves as working to increase token value.
"Well technically" works sometimes. Only sometimes. And people who aren't familiar with SEC rules are not really qualified to say if it's fair game or not.
Extradition is 10 order of magnitude harder, even for the US legal system. Plus, he'll have enough time to figure out another country where extraditing him is just not worth it anymore.
Not really. As a local, I can get by without any aadhaar. He had $1.5m in bank, he could have started his parallel government, or probably for $15m but the fact is that even if you're doing everything by law you don't need aadhaar in India.
What would they offer to make it worthwhile? It's not like the US is holding Indian nationals in detainment whom the Indian Government would be willing to scour the country to find someone to exchange for release.
Perhaps they would for a violent criminal or terrorist, but it certainly seems unlikely for a relatively small-time white collar criminal. The fraud totaled $1.5M, this guy isn't exactly Bernie Madoff. Surely the US would not expect the Indian Government to spend multiple millions in operational and resource costs to locate, capture, and extradite a nonviolent criminal who made $1.5M illegally.
Could be lots of things more or less public and unrelated. One more diplomatic visa, help locating/finding/extraditing an India national from U.S., a little help for a contract... Countries have a lot of "diplomatic" incentives they can use for situations like that. And sometimes it is totally worth spending 10x the fraud amount if what you want to do is an example which could well be the case here.
I wonder if the request to show up at the Seattle office was some kind of working with law enforcement. Evidently he planned to flee to India instead of take the meeting. He seems to have known there was risk to him in that meeting.
Could well be he was tipped off about the purpose of the meeting...
Most fully remote companies won't demand an in person meeting unless it's something of a disciplinary nature anyway. Merely a message saying "Your employer requires you to appear at X time at Y place" would be a red flag for many.
The message would say "is it easier to discuss this next to a whiteboard?" If it were friendly...
He could've taken out cash from his local bank account, turned off his phone, driven to San Ysidro and walked through the public turnstile into Tijuana. And then tried to get a flight from Mexico City to somewhere in south asia.
Would have been much better than going through the US/Canada border which has a full data sharing agreement between CBSA and US CBP/ICE.
(note: this is a stupid, humorous theoretical, not real advice on how to flee to avoid prosecution)
also, a note, any airline flight that crosses US airspace submits its passenger manifest to US CBP/ICE/DHS electronically as a database transfer, this has been a thing for 20+ years as a result of 9/11 and the PATRIOT act.
Crypto is good for recouping his funds once he's out of country and settled. Not super liquid when making last minute on-the-fly purchases though (at least not with the current level of adoption)
Mexico doesn't check anything. Years ago I walked into Mexico.
2019 I rode a motorcycle into Mexico, so you could argue they had my plates, but they didn't know who was under the helmet, and definitely didn't know which 5' passenger I had as a passenger also wearing a helmet, even though you could argue she's possibly the size of a child even (she was just a small 23 year old)
Taking a large sum of cash would have probably been a trigger for the folks surveilling him, though. Maybe he could get away but that is going to trigger something.
Why the need for the large amount of cash? It's not that you can't access banking websites from abroad. Sure, his bank accounts might be frozen or off-boarded as a result of the investigation. But in general, you can always transfer your money and don't need to bring cash.
If you're expecting someone to call the police during or after the meeting where they ask you about the crimes you committed against them, you probably want to obtain enough spending money before you're officially a fugitive, rather than hope they won't cancel your credit card or use it to find out where you are in the coming days.
Though you'd have thought someone committing financial crimes in the crypto industry might have more scope for planning their offramp
From his perspective he could have believed it was just coinbase connecting the dots and he was just going to leave since they, if alone in their investigation, effectively had no immediate power over him.
There was no way they were going to let him leave the country, no matter when he booked the flight. booking the flight made it easier to arrest him. the meeting was set-up by the feds to arrest him there instead, but he thought that leaving the country would work, which it obv. didn't.
There's a traffic signal with a green or red light. If you get a green light, you keep going. They don't even ask for your documents. If you get a red light, you have to stop and go through the full process.
it goes to show how the gov. takes this sort of crime seriously, contrary to the popular belief that the SEC is ignoring insider trading. if the pieces are there, they will take action.
Interesting that it sounds like that tweeter thinks that Coinbase wants the SEC to go after this case. In reality Coinbase is upset that the SEC went after this (but fine that the DOJ went after it):
Sorry I'm not familiar, I've been following this coinbase story for a while, but didn't know that Twitter user was in on it. Do you have any link or info to share?
Coinbase shady stuff around listings has been an open secret in crypto, everyone knows about it. Dates all the way back to LTC listing and probably earlier.
There are "no fly" lists, and I presume there are lists of "if this person shows up at the airport checkin, inform the police" lists. Also, DHS has Passenger Name Record (PNR) for everybody who flies internationally at least. It'd be trivial to put a flag on it for a person, and then just meet him at the gate.
often the feds will surveil someone for a long time and just wait until they try to leave the country . it makes it much easier than trying to do the arrest elsewhere. it's all electronic . You buy a ticket, show your ID/passposrt, and your info will go out.
My dad always said, if shit hit the fan, he would go to Brazil. Brazil isn’t exactly lawless, but it’s such a mass of humanity and so many cultures blending together that literally nobody would stick out like a sore thumb there.
I met a guy living in Brazil once while I was staying at a hotel for work, he said he moved there specifically because he had enough of the governments reach into his personal matters.
Two days later, his (Brazilian) bank started to withhold his (non-Brazilian) salary payments for money laundering suspicions because he forgot to file one random document, he was frantically trying to find a way to open a bank account here in Europe, no one would let him with his Brazilian residency, and he had to resort to asking his wife for money. Another two days later, his lawyer told him to get lost because the Brazilian tax office knocked at his office door, he lost the preliminary court case to get his (to begin with, legal) money back, was stranded in Europe and they went to detain his wife. He couldn’t even open a cryptocurrency exchange account because not even they want to deal with the Brazilian authorities and the only ones operating in Brazil itself are on the governments leash.
It's not lawless at all. He also told me they have a personal identification number like the US SSN, but that it's much more widely used for almost anything, even if you want to rent an apartment or go shopping (his words, never verified it) and allows authorities to track their every (mostly financial) step. He emphasised you better have that number ready when you enter the country too.
I'm pretty sure the 30% of the Brazilians who don't have bank account, don't have these issues. Your friend picked to live in Brazil, but also didn't want to sacrifice his western conveniences (ie: A bank account, card, being connected to the "system"). He got the worst of both worlds.
Yes, Brazil is extremely bureaucratic and almost everything is linked to the CPF (Cadastro de Pessoa Física) tax registration number. It's necessary to open a bank account, get a phone, book a flight, rent a car, etc.
They probably have computers on the outgoing checkpoint too. Maybe walk across Rio Grande or something. Or just go to Florida and swim for a really long time.
> They probably have computers on the outgoing checkpoint too.
Does the US have outgoing checkpoints on its land borders? I thought you only dealt with the Canadian/Mexican customs agents on your way out, and only dealt with US CBP on your way back in. (I haven't crossed a US land border since a road trip to Canada when I was a kid, so I could be very wrong.)
It depends on the stage of the investigation. if he was only a suspect then could he leave whenever he wanted. However, if someone is already indicted but it's sealed, then he would have been under watch without anywhere to go. Or he could hve been stopped and brought before a magistrate. HIs mistake was he waited too long, probably should have left in april before the evidence came out, not May.
It talks volumes about the internal controls at CB that it took a tweet to expose this.
Given the speed with which they grew last two years I expect their financial and security processes to be next to nothing.
This is just tip of an iceberg. Insiders would have made tens of millions over last two years of bull run, if not more. This dude just got greedy and unlucky to get caught just as the crypto bubble began bursting.
A lot of people suspect there's ""official"" insider trading at the exchanges; there's no reason for the exchange not to front-run orders or fake the order book if they think they can get away with it. Or trade against heavily leveraged positions to liquidate them. Or prop-trade with the customers' money.
Crypto people love to talk about incentives when referring to things like crypto adoption by the market, or corrupt actions on the part of incumbent powers like bankers or politicians.
They are much less enthusiastic about discussing incentives when it comes to things like exchange operatiors front running their clients, centralizing forces in crypto generally, etc.
What makes you say that? In my experience, centralized exchanges are perceived as public enemy #1 by a lot of crypto people. They are seen as a necessary (but temporary) evil to bridge the "legacy" fiat world.
I just don't see it going away. Services like Coinbase have done more for adoption than any crypto-evangelists on message boards ever have if we're being honest with ourselves. People need it to feel familiar, and these pseudo-banks/stock exchange platforms feel close enough to the "real thing" that people are making the jump. I mean the fact that over a decade later and wallets are still this incredibly high-friction experience for users says a lot. Just having an easy place where you go "input debit card, get crypto," makes all the difference - and that's a service large exchanges have covered, thus locking people into their platform(s).
Edit: Also, Uniswap...ehhhh. Not a great example for your point.
Is it me or "decentralised" almost always means "crippled"? The critical function that exchanges have is to allow people to buy and sell tokens. Decentralised exchanges can't do that. They only allow trading a token for another token.
"Decentralized" doesn't mean crippled. "On-chain" does.
At some point, you need to interact with the off-chain world (say, when you want US dollars and not tokenized US dollars), and that path to the physical world becomes a point of failure that can be controlled by mundane means such as uniformed people with guns. The crypto-utopian solution is to move everything on-chain. The pragmatist solution is centralized exchanges that more-or-less plays by the rules of wider society and is allowed by society to move stuff in and out of the blockchain.
But we have stablecoins, like USDC, to act as on-chain dollars. The point is in a world of very robust decentralized exchanges, it's easy to buy tokens with dollars (or vice versa), by sending dollars from your bank account to Circle, who will send USDC to your wallet, which will then buy the token of your choice from a decentralized exchange.
In this context Circle is still a centralized party that's necessary to interact with the off-chain banking world. But Circle has much less room for chicanery than a traditional centralized exchange. There's no opportunity to front-run, insider trade, liquidate your customers or anything else that OP brought up in the context of centralized exchanges, because all Circle is doing is filling the very simple task of converting 1.00 USD to 1.00 USDC and nothing else.
The tokens being traded on DEXes can be stablecoins. In a world where most usage of fiat is in the form of using stablecoins, or one where most financial institutions provide conversion of off-chain fiat to/from stablecoin fiat, most trading can happen on DEXes.
The primary purpose of a centralised order book is pool liquidity and enable price discovery. Interaction with the fiat system is fairly easy once you have 1 reputable party willing to issue a digital token with 1:1 redemption
Correct me if I'm wrong, but Uniswap doesn't allow people to buy crypto currency with fiat. It only exchanges between various crypto currencies. There will always be a need for fiat-crypto exchanges like Coinbase, that are centralized by necessity.
Sure, but that role could be truncated to "convert between financial system currencies and stablecoins" while DeFi handles all the other work of an exchange, displacing centralized exchanges.
And even that role might be obviated once enough people transact directly in the stablecoins.
(Not necessarily saying it's likely, just delineating the hypothetical word where DeFi has maximally taken over.)
>>Sure, but that role could be truncated to "convert between financial system currencies and stablecoins"
Coinbase has already started doing that, by abolishing the distinction between the stablecoin, USDC, and its bank deposit USD.
It's entirely plausible that other financial institutions, beyond commpanies like Coinbase which are heavily involvd in the cryptocurrency market, begin doing that as stablecoins gain wider credibility and adoption.
Huh? I was talking about a world where they only concert between those assets. If coinbase is additionally doing that, then that’s not what I’m describing.
And it’s it’s not even the service I was referring to (which requires that the asset classes be kept distinct).
I swear, something about that comment just set people off, when it should be uncontroversial with the caveats I gave.
I was agreeing with you. I was citing an example of a financial institution providing that particular utility, to support the idea you presented, that it's plausible that one day financial institutions could be relegated to only providing that utility.
Your point was well supported, so I don't see the reason why it got downvoted.
>>which requires that the asset classes be kept distinct
Yes it's not exactly what you described, but functionally speaking, it is quite similar as it enables on-chain and off-chain fiat to be converted one for one.
Uniswap is *so* easy to slander to the ground from centralized exchanges if push came to shove. It's the primary tool for exit scams, there's barely any qualifications or criteria to mint a coin, ICOs simply don't matter anymore - all are particularly easy points to hit if you're competitors fall short on handling them. And that's just mentioning the pragmatic on how Uniswap neglects fixing the BAD side of crypto, it doesn't even go over how Uniswap delivers only niche features on the good side of crypto - and doesn't do things like foster easier crypto buying/selling for mass adoption from the average person.
Please, come back to me when Uniswap's market cap isn't 1/3 of Coinbase's.
I work for a company that provides financial services to/on centralized exchanges, but none of us really like the centralization there; even if it's our bread and butter (for now) I think most "crypto people" are more excited about decentralized exchanges.
Depends on how you use the exchanges. If you just buy and sell BTC and keep your coins off-exchange, there is little reason to care about whatever schemes the exchanges are doing. If you start playing with leverage, you will be putting much more trust at stake, and it is your individual decision to do that. I have been involved with BTC community for many years and most Bitcoiners I know do not trade back and forth, do not buy that much shitcoins and do not store their coins on exchanges, so these schemes do not affect them.
Depends on who you're talking to, but I think the interest by crypto people in Uniswap suggests they're pretty aware of this problem and not excusing it.
Say what? The whole DeFi ecosystem basically exists to bring transparency to operations like exchanges. With e.g. liquidity pools, you can see exactly what trades it's processing and how it handles them.
It’s legal for the company to do it. Not legal for individuals. Coinbase could have bought assets ahead of time and done the same thing legally.
There was a case where a person had access to the credit card transaction data[1] and used that data to figure out sales prior to earning calls. That same data is available to hedgefunds willing to purchase it from Bloomberg. They call legally get a companies sales data prior to earnings and trade off that information.
bloomberg doesn't trade on that information, heck I didn't work on anything financially oriented while at Bloomberg (worked on BLAW) and I was still restricted in the type of investments they allowed me to make.
i.e. by definition bloomberg buying the data and making it available to the terminal is making the data public.
"A lot of people suspect"? Are we being overt? Am I the only one that not very subtly got offered insider trading of NFT tokens as a perk for joining a crypto company?
Not my intention! I hold no crypto stake apart from the free Keybase one and work for a non-crypto company. But the fact that you read that in my message indicates that it has been a clear part of the "offering" of crypto - that it's permissionless. i.e. there are no rules and no law enforcement.
If you look at the details in this case it appears that the actual charges are for exploiting confidential company information for his own gain and not insider trading.
Misappropriating fiduciary information is literally the legal basis for insider trading. There's a common fallacy that insider trading is illegal because the government wants to enforce a "level playing field". Nothing could be further from the truth. Insider trading is illegal because as an employee of the company, you're profiting off your job in a way that doesn't share any of the profits with your employer. In other words the "victim" of insider trading is actually the company itself, not the poor schmuck who you dumped a losing trade on.
Many things that are colloquially thought of as insider trading, are not against the law. For example it's perfectly legal for a hedge fund to hire a helicopter to circle an oil refinery day and night with an infrared camera, so they can get a precise estimate of how much revenue an energy company will announce in its quarterly earnings. This is perfectly legal because at no point was any of this information "misappropriated" in violation of a fiduciary duty. Very clearly the little guy in this case has no chance of competing, and this isn't a level playing field in any sense. But the law simply does not care.
I appreciate the clarification! But maybe you took it too far?
Publicly traded companies themselves are subject to regulations that impede varrious kinds of unfair and prejudicial behavior. Isn't the colloquially interpretation less far from reality than someone might extract from your comment? Since if regulations keep the company from doing it, and 'insider trading' keeps the insiders from doing it-- you're left with those that have superhuman insight from satellite photos or whatever (technically public, but maybe only practically available to billion dollar corporations) -- and at least the hedge funds are vulnerable to noise and misinterpretation. You might get thoroughly out traded, but hopefully not through actually privileged information.
The reason I bring it up is was really the reason behind my original comment: I think that nothing about this prosecution should make people investing in crypto-commodities, ICOs, etc. particularly obscure and thinly traded ones feel any safer from exchange insiders trading against them to their detriment.
All you we can extract from this is that if exchange staff do it for their personal benefit they might get prosecuted. But the staff doing it personally in their own accounts is probably a minor problem compared to the exchange engaging in it for its own profits.
I mean this is probably true for all exchanges, also for the traditional stock market; it's the financial incentive they have on top of the regular commissions they charge.
The person in question was sloppy, and as others said, this is probably just the tip of the iceberg.
Coinbase is an awful company. I signed up for a debit card for some reason, and it immediately became a fraud target. Someone tried to use it at a restaurant in South Africa, a store in Singapore and a mobile provider in Moldova.
The card was obviously compromised, and the only reason I didn’t lose money is that I didn’t make any available. So called, emailed, texted Coinbase on 5 different occasions and they never deactivated the card and didn’t appear to have a procedure to do so.
First rule of crypto is assume the exchange is compromised. Money on the exchange is always in danger, as is anything connected to it. They are not banks. The people running them are usually yahoos. They are not a save place to put money for any extended length of time.
The particular compromise attempt in South Africa was reported on lots of Internet forums.
My assumption is that Coinbase or their card provider was breached. That happens and I get it, but the lack of action (the card is still active!) in response to repeated customer inquiry is evidence of a broken process.
How would email being compromised leak a debit card number? Can't think of any service I've used online in the last decade+ that would send me the full debit card number that way, or even make it visible when I sign in to their website.
> Ethereum blockchain wallet “that bought hundreds of thousands of dollars of tokens exclusively featured in the Coinbase Asset Listing post about 24 hours before it was published.”
It talks volumes that had they done this in a privately held network, it might have been harder to catch them.
All the "blockchain is anonymous, hence it's made by and for fraudsters" is a total nonsense.
About a fraudster that was caught by a random person who could look at his fraud publicly, under the light of the sun.
The part after "fraudster..." is what sets apart the blockchain and traditional financial networks, when it comes to fraud.
If you commit fraud in the traditional financial system, only the financial institution has a chance to find it suspicious and tip the government agency responsible to investigate.
In the blockchain, literally ANYONE ON THE PLANET can keep an eye on the fraudster.
> Are you telling me that fraudsters get caught on the blockchain more than other places?
I'm sorry, but I did not say "more" and "other places" in my comment.
What I said is what I wrote.
My point is: blockchain is not anonymous. The hate bandwagon that says fraudsters have a safe heaven for doing whatever they want without a slight chance of being caught is just fantasy land...
This! It's so obvious from the buy / sell ratios of coinbase that they are fueled by millions (or 100ks) of small investors investing $10k or less. Joe consumer isn't going to sue over a bad investment. I am guessing that polygon, gamestop is similar. Also the counter parties aren't major US companies, they are often small to mid cap LLCs. So when the thing they push collapses they sort of fade away.
If this were a major US company ripping off say a US bank, there would be investigation. But a small start up (I'm thinking of the issuers, not coinbase) ripping off people all over the world for $100- $20k with false promises-- it's practically a victimless crime. Coinbase and the exchanges aren't necessarily guilty of this but they are complicit.
Evidence of flaws in using software for a given use case is not evidence that that use case is not what was intended. Software can have bugs or be badly designed for its intended purpose, especially when it comes to security.
People on this forum should understand that better than most.
I studied accounting. We were told that Internal Control, audits, reviews etc. are the silver bullets to curbing corporate corruption and accounting scandals. When we reached master's level all that was thrown out of the window and the truth was that, those techniques are only there to serve nothing but regulatory and statutory requirements. Corporate ethics is practically non-existential.
The way scandals are exposed are almost always through whistleblowers. That is a fact. If you want transparency and honesty in a system, establish a bounty system and protect the whistleblowers.
Wait until you reach the exec level to better understand how internal control, audits, reviews etc. do exist to create a perfect facade and magically make everything legal that you want to be legal. Also it is a good protection from small fishes or other gangs trying to take over your game.
I thought about this the other week when someone casually tried to walk into my house when I was sitting ten feet from the door. She was stopped by my deadbolt. No way my home security will keep out a skilled criminal, but door locks, audits, and other every level security at least raise the bar for someone seeking to do crime.
One incident that really stands out for me was BitMEX conveniently having "server issues" at one point during the March 2020 crash. Their liquidation engine was hammering the price down - then they took an outage - when they were back up BTC recovered.
I mean, this is exactly what happens when you work for a hedge fund. You have to provide statements for all trading accounts you and your immediate family own.
So, yeah, this is exactly what coin base should be doing. They should require all employees to list all account addresses they have access to.
It's a trivial ask for the employee and its trivial to scan
I worked for an investment bank for many years. We had to sign a declaration that we would not make trades of any kind without permission from compliance (the withholding of this permission in 2012 is why I am not a BitCoin millionaire). However, there was no requirement to hand over login details to brokerage accounts etc. I would be surprised if there was elsewhere.
The person you replied to said 'statements' not 'login details'. Are you treating these things as synonymous? I suppose if I was only required to hand over statements I could edit them.
I was indeed treating as synonymous. There was no requirement to provide statements or any evidence of compliance with the policy. I assume it was assumed that the remedies available for breach of contract would be sufficient.
Those days pretty much all brokerages will provide a feed of your trading activity and open positions to a 3rd party compliance aggregator like ComplySci. No login details needed, the feed is read-only, and only has need-to-know information. It requires double opt in - you provide information to your employer, and then the brokerage will confirm with you that you authorized the feed. But if you have a weird account that doesn't support this system, then you always have the option of entering them manually and certifying that you haven't missed any.
But it is so trivial to create more addresses than one reports to his/her employee. It is also difficult to verify that one has reported all his/her owned addresses.
Sure, and you can always open more brokerage accounts as well.
but the point is two fold.
One: you've done your diligence so as a company you've covered your ass with the regulators.
Two: you've made it clear to the employee what the rules are, if they chose to open a new brokerage account or wallet address then they clearly know they are breaking the rules so there is no confusion.
as one compliance officer said to me, the regulators aren't looking for perfection, they are looking to see that you are following both the rule you laid out in your internal policies and that you are doing what the rest of the industry does.
Undeveloped financial and security processes aren't a question of solely integrity.
You need integrity to implement them, but just having integrity doesn't mean you're going to implement them, or to implement them correctly.
You need expertise, experience, and to get burned a couple dozen times before your institution figures out how to do these things right. And even then, it's a constantly moving target.
Great example of how most of the fluff around decentralized finance being more fair just because it is public and “open” is naive at best and a wolf in sheep’s clothing at worst. They claim that regulated banks are a moral evil and “wouldn’t you want something neutral and open and transparent,” conveniently forgetting that this will always favor those with money to market, attract, and sell to potential “buyers” (scam victims, really). Especially with the use of bots and crypto’s rather insular and hype-driven community, it becomes dangerously easy to get tons of dumb money, almost entirely from people who are desperate enough to believe it.
Coinbase is not decentralized finance, it's a centralized crypto bank.
> the fluff around decentralized finance being more fair just because it is public and “open” is naive at best
As another commenter pointed out, the investigation was triggered by this tweet [0]. How is that not more open and fair? If there wasn't a public record of the transactions, like in traditional finance, this guy would have likely gotten away with it.
Because there still exists informational asymmetry where the platform/exchange owners (and all employees privy to that information) still have material advantage over their customers but can now manipulate them easier than they can in traditional systems. With traditional systems, you have to purchase shares with your real name and thus regulators are able to detect patterns easier. In DeFi, these guys just spun up new anonymous wallets each time and if they were slightly better at it, they likely never would’ve been caught. Getting to parity of current insider trading detection in DeFi would require massive data analysis constantly keeping track of which wallets make suspiciously timed trades, leading to the same financial surveillance and de-anonymity DeFi wants to solve. One good tweet is not enough to validate the whole system.
You have a point, but also this wouldn't have been unraveled as easily in traditional financial systems. here's the tweet that is cited in the indictment, that a layman could trace (and did)
The indictment describes the numerous ways in which the perpetrator managed to obfuscate the insider trading. It didn't stop the USG from finding him and prosecuting him.
If he used different wallets to buy different coins then the correlation might not have been noticed. Buying coins right before they're listed on Coinbase is still suspicious but it would have been less suspicious at least.
yeah but it was private and presumably a pretty limited number of people knew about it at the time which narrows down the number of potential candidates pretty considerably.
There are so many other ways to do this that are infinitely harder to track. Suppose token X is going to hockey stick. You can short a derivative that shorts X. You can long a derivative that longs X. You can leverage a lending protocol that contains X. Etc.
"Buying X when X will go up" has got the be the most unsophisticated way possible one can leverage insider information. Not to mention a basically guaranteed way to get caught.
That specific thing is kind of trivial to check though. Download the full chain, check which addresses has exactly the same list of tokens as the list was published by Coinbase, check which ones received the tokens shortly before it was announced.
Thought this was a repost of the DOJ charges last month against the former product manager who knew about NFT listings [0], but that was OpenSea. I guess this Coinbase incident technically counts as "First Ever Cryptocurrency Insider Trading" scheme, even though it's common to conflate "crypto" with NFTs and coins these days
> (including interstate
wire communications sent from ISHAN WAHI to a fellow Coinbase
employee located in Manhattan, New York)
This is an interesting side effect of our remote workplace culture.
It used to be that if you committed a crime physically in the workplace, I presume it would not be an interstate crime. However, now you likely are required to work with people all over the place so the laws are all escalated (as i understand it typically interstate law is more punishing).
This may sound like a dumb question, but as a foreigner, I have no idea what wire fraud actually means, but I hear it pretty often.
The explanation I found “Mail fraud and wire fraud are terms used to describe the use of a physical or electronic mail system to defraud another” doesn’t really help me further, other than it just being “fraud”.
What would be the difference between insider trading and fraud, in this specific case? Would it mean that someone basically enriched themselves with Coinbase without it being through trades (just to name an example, skimming rounding inaccuracies in your favor) ?
Note that the fraud here is against Coinbase. Namely, that the defendant who worked there fraudulently agreed to abide by non-disclosure and trading policies. The others are wrapped up in conspiracy charges.
I think this is a pretty novel charge and IMHO isn't going to stick. They're going to have to prove an intent to deceive and deceive specifically to "insider trade". Agreeing not to disclose and then disclosing isn't in itself fraud. You have to plan to disclose prior to that agreement to make it fraud.
The problem is that separation of powers make most frauds a state matter. If you were ripped off in NY, a local county district attorney would prosecute you.
The problem with that is state laws and capabilities are inconsistent. Even in New York, where there is a well established body of law for things like financial frauds, the local prosecutors make lack capability or venue. If you live in Lake Placid, NY and are scammed, it’s unlikely that the Essex County DA (probably 4 attorneys) has the capability to prosecute a complex financial crime. If you live in Manhattan, different story - that DA has thousands of attorneys and expertise.
The Federal government side-steps turf issues and inequity by using more “umbrella” laws that are easy to approve. If you commit a fraud that has a connection to the mail, “Mail Fraud”. If you use a phone, “Wire Fraud”. If you take money that isn’t yours from an FDIC insured bank, that’s a Federal crime. If you lie to a Federal agent, that’s a crime.
You got it. A lot of newer or expansive federal powers are based on interpretations of the power to regulate interstate commerce.
The Senate is by design very conservative (or regressive depending on POV). Stuff gets done by squinting at the law and finding new ways to get shut done.
Insider trading is (roughly) specifically about using non-public corporate information to make money.
Fraud is generally about deceiving people. Wire fraud is specifically about deceiving people using telecommunications devices - imagine when telephones first became popular - a fraudster before had to go knock on every door, expose his face to the town, and possibly be driven out if people found out what he was doing. With telephones, the fraudster could sit in a loft in NYC and call thousands of people all over the country with their fraud, and there would be very little anyone could do to stop them.
Fraud can be a state or federal crime, "wire fraud" usually means it is at the federal level because of its use of interstate electronic communications.
Mail fraud is similar. If you send someone a letter, you're using the US Mail system and thus are involving the federal level making it a federal crime. If you exclusively use a private interstate letter carrier (FedEx, for example), you are still committing mail fraud because the law was amended to cover that.
“Doesn’t really help me further, other than it just being ‘fraud’.” Shows a correct understanding of what wire fraud is. It’s an incredibly broad category, meaning basically any fraud that happens at distance that doesn’t involve a physics means of communication like mail.
In this case, because the trades were made via digital communications, it’s wire fraud. The reason you hear “wire fraud” so much is, as you might be able to guess, the vast majority of fraud these days takes place over the web.
In this case the indictment is “wire fraud in connection with a scheme to commit insider trading”. So it is both wire fraud and securities fraud. Generally speaking, the relevant information will be whatever specific fraud they are accused of committing over the wire, and not that it is the incredibly generic term wire fraud.
Mail/wire fraud is simply fraud that was conducted using mail or other communications platforms.
Insider trading is specifically about rules around trading securities.
In this case the allegation has nothing to do with securities trading, it's about an employee defrauding their employer by misappropriating privileged information.
Also conducting fraud, if it ever touches a piece of US mail, opens up the channel to be investigated and prosecuted via the US Postal Inspection service. Which I have heard, they are no joke.
US authorities often don't have enough evidence to prosecute for the underlying crime, or it may have low penalties, but they often have the evidence to prosecute for mail fraud or wire fraud(basically any means of electronic communication). Mail/wire fraud are federal offences, so this also involves federal prosecutors and agencies with more resources, surveillance abilities, and higher penalties.
I have a friend in federal law enforcement that deals with crypto and financial crimes. He explains it like this:
"First, I need to get a 65 year old Federal prosecutor to understand what this case is about. Then, they need to be able to potentially argue the case in court and to a jury that almost always has no idea what any of this means."
He goes on to say that wire fraud is essentially a universal catch-all charge that distills the crux/burden of the case to two facts:
1) They committed fraud.
2) They touched a computer while doing it.
These two points are much easier to argue, prove, and most importantly get a jury to understand (and convict on). Even though most federal prosecutions result in a plea deal of some sort the simplicity of arguing and proving wire fraud results in a much higher rate of success for a favorable plea deal and/or the threat of going to trial with a crime that's so easy to prove.
Curious about what would have happened had the protagonist managed to board the flight to India and get there ? Would the SEC and Coinbase been able to extradite or do anything then ?
The protagonist is the main/leading character in a story. It's not a moral judgement except in the sense that stories usually make the protagonist the good guy.
It is about perspective. The government & Coinbase are antagonists to the POV of the fraudster and the fraudster is an antagonist to the POV of the government and Coinbase. Since the release is from the government, I think that makes him the antagonist?
According to the [indictment][1], they violated [18 USC § 1343][2], when they:
participated in a scheme to deprive
Coinbase of its exclusive use of
confidential business information
related to Coinbase's plans to list
certain crypto assets on its exchanges
Should I give a link to the other one even though it's currently listed right under this story? Heck why not... occasionally the crypto discussions are intelligent...
That is barely scratching the surface. I remember reports on reddit of people buying newly listed crypto assets in advance. That was in ~2016 and they didn't even try to hide.
Litecoin was the third cryptocurrency to be added, and it was the most obvious choice to be next, seeing as how it had the next highest market cap after Bitcoin and Ethereum. Before Ethereum was a thing, Litecoin spent a lot of time as the #2 cryptocurrency. It was the original "altcoin". There was already massive demand to add Litecoin, which is probably a key reason that they hired Charlie in the first place.
>a former Coinbase employee used a manipulative or deceptive device by intentionally placing buy and sell orders in the Litecoin/Bitcoin trading pair on GDAX that matched each other as wash trades. This created the misleading appearance of liquidity and trading interest in Litecoin. Coinbase is therefore found to be vicariously liable as a principal for this employee’s conduct.
>According to the order, between January 2015 and September 2018, Coinbase recklessly delivered false, misleading, or inaccurate reports concerning transactions in digital assets, including Bitcoin, on the GDAX electronic trading platform it operated. During this period, Coinbase operated two automated trading programs, Hedger and Replicator, which generated orders that at times matched with one another. The GDAX Trading Rules specifically disclosed that Coinbase was trading on GDAX, but failed to disclose that Coinbase was operating more than one trading program and trading through multiple accounts.
There is nothing whatsoever that says that the given employee is Charlie Lee.
Since you are the one here making that claim, isn't that exposing you to slander if it turns out to be a false?
On top of it you seem confused by the two different things addressed by the linked CFTC statement, the litecoin related thing (Litecoin/Bitcoin trading pair) happened in August & September 2016 (6 weeks total) and you are confusing it with the inaccurate reports during January 2015 and September 2018 which is a separate point.
I included "According to the order, between January 2015 and September 2018, Coinbase recklessly delivered false, misleading, or inaccurate reports concerning transactions in digital assets" as extra evidence that Coinbase and it's employees have a history of untrustworthy behavior.
I recommend caution to crypto engineers - the world loves you when you make people rich, and the world might be willing to excuse shady behavior for a brief time.
When things sour shady people will get what they deserve, and the metaphorical mob will come for their associates/companies.
"Do Kwon, the founder of the cryptocurrency Luna and the stablecoin TerraUSD, has reportedly been in contact with police after a possible investor in the coin “trespassed” at his home, according to a new report from South Korea’s largest newspaper, The Chosun Ilbo. Crypto News reports the investor lost roughly $1.56 million in the collapse of Luna, a claim Gizmodo could not independently verify.
An unnamed man rang the doorbell to Kwon’s apartment around 6:23 p.m. local time Thursday night, according to Chosun, and Kwon’s wife answered the door. The man reportedly asked something like, “Is your husband home?” and then proceeded to run off...
The unnamed man who arrived at Kwon’s home faces a charge of trespassing because he allegedly entered the apartment complex by slipping through a gap in the apartment building’s common door, according to Chosun. CCTV footage from the incident and surrounding area is reportedly being reviewed..."
Fraud is everywhere in crypto but it has very little to do with *crypto engineers*.
In other words, lots of *engineers* are bedazzled by blockchain but this isn't the source or the cause of most of the fraud. Blockchain is just an accounting system. As this example shows, there are lots of way to commit fraud outside of forging the books.
You might be thinking of Charlie Lee? Charlie Lee joined Coinbase, wash traded Litecoin [1] to give the appearance of wider interest and volume in order to get Litecoin listed on Coinbase, and promptly dumped all his bags at the peak.
Charlie Lee made all his fortune from selling his Bitcoin and Ethereum the rest is marginal.
His track record regarding the launch, support and development of Litecoin is impeccable and rather unique in the space.
Even half a decade after having no stake in the game he's still dedicating his life to promote and develop Litecoin.
Given the article explicitly covers the topic of an employee exploiting prior knowledge of what coins were going to be listed and when - clear the investigators were aware of the potential for this; if others were doing it, they must have done it in a way that was not obvious.
If you have specific verifiable information, hire an attorney and use them to file a SEC whistleblower report. If your evidence leads to enforcement actions that are subject to their jurisdiction and the fines collected are over one million, you will anonymously get 10-30% of the fines they collect.
> On the evening of Sunday, May 15, 2022, ISHAN WAHI purchased a one-way flight to India that was scheduled to depart the next day shortly before ISHAN WAHI was supposed to be interviewed by Coinbase. Prior to boarding the flight, ISHAN WAHI falsely told Coinbase employees that he had already departed for India when he had not. [...] Prior to boarding the May 16, 2022 flight to India, ISHAN WAHI was stopped by law enforcement and prevented from leaving the country.
He's just a scapegoat, it's been going on for years and you can easily verify it, just check when any coin/token has been listed on Coinbase (the twitter announcement, from the Coinbase pro account since that's where they usually got listed first), then check the price for that time period, the price usually starts increasing a week before.
Add this to them blocking withdrawals for assets whenever these assets start pumping on other exchanges and lots of people try to withdraw at the same time, and multiple other shady practices most exchanges do (but not all, for example Kraken has been decent for quite some time and are one of the few exchanges that are pro transparency when it comes to their reserves) and you get yourself Finance 2.0, where the few are allowed to prey on the many, and you can't compete with the few (for example when Arthur Hayes was kicked out and replaced by Sam Bankman Fried).
Why are they being prosecuted? Those are not securities, or are they? "Wire fraud" implies that they defrauded someone by lying to their own advantage over a digital channel. Insider trading is generally legal for non-securities.
EDIT: I am not implying that they shouldn't, on a moral level. They should! I am asking about legal technicalities, and about the state of law around those issues.
> U.S. Attorney Damian Williams said: “Today’s charges are a further reminder that Web3 is not a law-free zone. Just last month, I announced the first ever insider trading case involving NFTs, and today I announce the first ever insider trading case involving cryptocurrency markets. Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street. And the Southern District of New York will continue to be relentless in bringing fraudsters to justice, wherever we may find them.”
> FBI Assistant Director Michael J. Driscoll said: “Although the allegations in this case relate to transactions made in a crypto exchange - rather than a more traditional financial market – they still constitute insider trading. As alleged, the defendants made illegal trades in at least 25 different crypto assets and realized ill-gotten gains totaling approximately $1.5 million. Today’s action should demonstrate the FBI’s commitment to protecting the integrity of all financial markets – both ‘old’ and ‘new.’”
Why do you say insider trading is legal for non-securities?
> Why do you say insider trading is legal for non-securities?
What, exactly, prohibits you from doing that? Certainly not the Securities Act of 1933 or any SEC rule.
Overall maybe this is a complicated way of officially calling them securities and cleaning this mess on a higher level. At least that's what the FBI implies. However, it is not up to the FBI to decide what is a security, but rather up to the courts of law. This will be interesting.
> Certainly not the Securities Act of 1933 or any SEC rule
U.S. insider trading restrictions are creatures of common law. The ‘33 Act makes no mention of it. The same antifraud/antitheft theories enable prosecution of a Coinbase insider using their position to trade with advantage.
"Nikhil Wahi and Ramani allegedly purchased at least 25 crypto assets, at least nine of which were securities, and then typically sold them shortly after the announcements for a profit." https://www.sec.gov/news/press-release/2022-127
Yeah, it may be a way to officially call at least some of them securities:
> "We are not concerned with labels, but rather the economic realities of an offering," said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. "In this case, those realities affirm that a number of the crypto assets at issue were securities, and, as alleged, the defendants engaged in typical insider trading ahead of their listing on Coinbase. Rest assured, we’ll continue to ensure a level playing field for investors, regardless of the label placed on the securities involved."
Should this go to the courts which end up deciding that they are in fact securities - that will be a nice precedent.
I kind of see the point of those who think this is obnoxious and damaging to the rule of law, even if what Grewal says is perfectly true. Just because one part of the government thinks something is a security, even for logical reasons, doesn't mean every other part agrees. The SEC is not the supreme and only authority, which means you can't simply obey its whims.
Why does it have to be fought out in court with no master plan?
If X, Y, and Z are securities, then why can't the government label them as such and enforce that others do?
Why can't rules and regulations be made in an orderly fashion so that people know what is legal without costly litigation?
I mean, those are rhetorical questions; it seems like the reason is everybody is making it up as they go along and there's no leadership.
It's like "move fast and break things" has become so standard that nobody bothers to say "wait, breaking things because you don't look before you leap is wasteful". It's just how we do things here.
It's prosecution for "insider trading" that doesn't rely on anything specific to insider trading. Focus on the insider part, not the trading - it's about embezzlement of confidential information.
Correct they are charged with Wire Fraud and Conspiracy to commit Wire fraud
They are not charged with securities violations, despite roping in the Securities Exchange Commission, because the government is not confident that it can bring a securities violation. They are not charged with any statute under commodities regulations or consumer product fraud either.
The government is using a new interpretation of wire fraud, because people really don't like that this action occurred and NFT's affected enough people.
So the wire fraud is a stretch but is the most reliable catch-all charge they have, absent any guidance from Congress.
I also think it is overly ambitious. DOJ did this a few months ago as well in another NFT case. In both cases they relied on the existence of a confidentiality agreement with the employer, to trigger the mapping of a financial action to a fraud statute.
As Matt Levine would say - and will certainly write about tomorrow - Insider Trading is about theft. They stole valuable company information before it was publicly known to profit from it...
There's been a lot of shakedowns and refurnishings in the crypto landscape lately. The US seems to catch or point fingers at people left and right. Why is this happening now all of a sudden?
While the irrational exuberance is in full swing no one cares about fraud, they just want to keep the cash flowing. Once the crash starts that's when suddenly all that bad behavior gets put in the spotlight.
You're mixing two things. There has been a run of bankruptcies recently caused by the crypto price crash which itself was caused by macroeconomic factors. There has also been a slow but steady series of crypto enforcement actions over the last five years or so.
Why are you calling it "pump-and-dump"? Is there evidence of them dumping? The link just says that the author thinks a16z is wrong and likely engaging in motivated reasoning.
I wonder how many wallets you would need before it becomes a problem to track. I would guess in the millions or more since graph algorithms are pretty efficient these days.
I was thinking more along the lines of a directed graph where each of the wallets pass the funding received to multiple other wallets before the money finally converges to a destination wallet, it doesn't have to be a straight linked-list style line of wallets.
In any case, the transaction costs alone probably makes this prohibitive for more than a few dozen wallets.
Charged for what? There is no "insider trading" with cryptos, just as there isn't any with Forex, fiat currencies. He can't be charged, because there is no crime. No law prevents you to trade cryptocurrencies or fiat on insider knowledge. Might be unethical, but not illegal.
> There is actually no particular law against insider trading at all, not even related to equities…
There actually is. See, well, a whole lot of 15 USC Chapter 2B [0], notably provisions like 15 USC Sec. 78p (prohibiting certain trades by corporate insiders, and creating civil liability of those conducting such trades to the issuer of the security thus traded) and 78u-1 (authorizing civil penalties by the SEC for insider trading made illegal by the Securities and Exchange Act.)
What Bloomberg probably meant to say is that there is not a distinct crime of insider trading, but that illegal insider trading is generally also the crime of securities fraud.
The main problem with crypto is it forces us all to have to re-learn why fraud is bad, and in the process it allows those in power to arbitrage the fraud-learning itself. Satoshi explicitly remarks that fraud is a critical weakness of crypto. Regulations and laws might suck, but when so many societies have adopted anti-fraud mechanisms, hey maybe that was actually a good idea and not something we need to re-learn?
Even Roughgarden’s textbook proves the vulnerabilities of blockchain-based mechanisms.. .. Maybe crypto advocates citing false straw man arguments should be considered investment advice and punished by the SEC as well.
IANAL but I believe the legal theory is they stole proprietary information from Coinbase (information about an upcoming listing) and used it for personal profit. The "victims" in this view are NOT users of the exchange (or the broader cryptocurrency market) but rather shareholders of Coinbase.
Unpopular opinion incoming: the concept of insider trading is stupid, and even more stupid applied to cryptocurrency. People will always find ways to profit from privileged information. The least careful ones will just keep getting caught while the most careful reap the rewards and get away with it. Cryptocurrency isn't even a regulated asset, how can someone be 'insider trading' it?
What insider trading really means is a middle class person profiting in a way the ruling class don't like. Apparently it's legal for Congress to insider trade. It's legal for CEOs to insider trade.
By this same logic, fraud shouldn't be a crime. People will always find a way to profit by misleading people, and the most careful ones will reap the rewards and get away with it.
That's incorrect. Due diligence is expected of any person who enters a contract. This forum was recently poopooing Musk for violating his purchase contract even though he may have had legitimate concerns of Twitter keeping secret its number of bot accounts. If you want to make the case that the ignorance of one party is sufficient to accuse the other of fraud, the burden of proof is on you.
The victim of insider trading is everyone else participating in the market that is not insider trading. Which, given the widespread reliance on 401k's for most of our accumulated wealth, is all of us.
If insider trading is allowed then, yes, those who have access to inside information can trade on it more efficiently. But it also highly incentivizes market participants to hide information. In a world where insider trading is allowed, anyone who has access to inside information can now personally monetize it as long as that information does not get out to the wider market.
You're basically paying people to manufacture information asymmetry. As an emergent effect, that does not lead to the widely available information needed for a market to perform efficiently.
The essence of the cryptocurrency narrative is laid bare here. Sure, maybe it looks like it’s scamming desperate people out of their life savings, but ignore that, really it’s just a middle class person profiting in a way that the ruling class doesn’t like! Why do you hate the middle class getting rich? You must be in league with the globalist bankers.
No, insider trading is clearly not 'a middle class person profiting in a way the ruling class don't like' - it's using information you have that most of the market doesn't in order to take money from them. The answer to wealthy people being able to get away with insider trading easier is not to throw the baby out with the bathwater and say that all insider trading is fine, it's to actually enforce insider trading laws. It's not some impossible task to do a better job enforcing those rules, it's just not popular with the people who (shocking) make money by exploiting this kind of information asymmetry. If we decided to make it a policy priority tomorrow, the problem would be much, much smaller.
Insider trading laws don't mean anything. Person X can send encrypted messages to person Y who lives half way around the world to make a trade and they will be near impossible to discover unless person X is surveilled. Even then, person Y can just get away with it.
That's not my point. Insider trading is so easy that anybody with privileged information can do it and even get away with it if they're cautious. Instead of working tirelessly just to catch the sloppy 1% we should reform the market so that nobody has an advantage because of what they know.
The solution to the issues you identify, which are real, is to improve the equitabiliy of the US justice system and strengthen laws against insider trading.
> The least careful ones will just keep getting caught while the most careful reap the rewards and get away with it.
The clearance rate for homicide in the USA hovers somewhere between 50% and 70% most years, and the clearance rate for rape in the US is much lower at 32% in 2018.
> What insider trading really means is a middle class person profiting in a way the ruling class don't like. Apparently it's legal for Congress to insider trade. It's legal for CEOs to insider trade.
Wealth is probably also helpful if you want to get away with rape or murder.
This is a psycho take. We banned insider trading. Allowing insider trading would obviously help the ruling class. CEOs cannot insider trade. And obviously we should just ban congress to trade stocks.
A variation of this comment is made on HN whenever insider trading comes up, leaving me no recourse but to post the same response every time: insider trading is criminalized not least because it is corrosive to public trust in financial institutions.
Your examples (Congress, CEOs) demonstrate this: main street investors have overwhelmingly lost faith in those institutions over the last two generations. The solution isn't to race to the bottom; it's to make insider trading universally illegal.
The accused was using their access within Coinbase to front run trades and announcements. That's not "middle class" trading under any reasonable definition and I can't imagine why you think it should be legal.
How would any market function if the market makers are allowed to cheat with impunity.
For a free market to have "perfect competition", one of the requirements is that "Buyers have complete or perfect information (in the past, present, and future) about the product being sold and the prices charged by each firm."
Information asymmetry is a big factor acting against a free market that is "perfectly competitive". In the US, commerce regulations are more or less meant to to push the market as close as possible to this theoretical state of perfect competition.
Insider trading, front running, or any similar forms, directly act against this goal and increase information asymmetry.
trading on information asymmetry is usually referred to as fraud. insider trading is just a subcategory that is relatively easy to prosecute and prevent
The point is that they can be caught and then prosecuted. It won't stop it but it makes it harder. People will always break the law. The point is to make that harder and have a punishment for doing so. We need better laws to prevent lawmakers from profiting as well.
Re: congress, I think there should be a public fund that mirrors the trades of reps and senators and a platform that enforces their trades happen concurrently with public funds. The Pelosi’s seem to have impeccable market timing that, I’m sure coincidentally, seems to correlate with policy votes.
Certainly, elected officials working for our best interest would want to share their success with their constituents.
>On May 11, 2022, Coinbase’s director of security operations emailed ISHAN WAHI to inform him that he should appear for an in-person meeting relating to Coinbase’s asset listing process at Coinbase’s Seattle, Washington office on Monday, May 16, 2022. ISHAN WAHI confirmed he would attend the meeting.
Anyone know why Coinbase would set up this meeting if they knew it was him? Was it a bluff to see if he'd flee? Or were they setting up the arrest to happen at the office? Couldn't they just have arrested him in his home?
I doubt that Coinbase would want to arrest this person at their offices. I'm sure that the plan was to question the suspect with the FBI present. If the FBI asks a question, and you lie, it's a felony. If your employer asks you a question and you lie, it's legal.
Either way, this was a ruse to get WAHI to start talking. Likely they would execute a search warrant at his residence after he left to appear in-person.
As an FYI, people under investigation by federal authorities are added to a database that alerts agents to the purchase of any flight tickets (domestic or international). Unfortunately for the suspect this means he will undoubtedly be detained until his trial in several years.
I know a lot of local police like to go into homes with guns blazing, but the smart cops would much rather set someone up outside of their home where they're less likely to be armed and bunkered.
If I were a cop arresting somebody in their home would be my worst case scenario IMO.
Toronto cops are definitely the dumb kind: went to execute a search warrant on a gunsmith while he was in his gun workshop and, whodathunkit, the gunsmith reached for a (non-operational) gun!
He should have just made those youtube livestream giveaway videos instead--the ones impersoning famous people like Michael Saylor and others. Those people make way more and no arrests.
1. If Coinbase itself had purchased a bunch of coins before listing on its own exchange, would that be illegal?
2. If the employee had purchased coins that were correlated with the ones that were listed, but not the specific ones that were listed, would that be illegal?
With 1. I think it depends on intent. For example when Tesla purchased BTC before announcing they were taking payments to have some liquidity on it for financial reasons or whatever, then it's ok. If you can prove they are front-running the market because for example right after announcing they are listing a coin they dump what they got before listing it then yeah maybe that's insider trading.
The thing is if they take enough measures to prevent their employees from doing it. It's hard considering they can do it on another exchange, but at least on their own exchange my understanding is they should prevent their employees from trading if they have privileged information.
1. Unlikely, it's just investing. You are expected to gain from your investment, to promote it, etc. Like how companies buy and sell their own stock all the time and it's not considered insider trading.
2. Yes, since the fact that the coin was to be listed was inside information. You will be accused of insider trading if you trade correlated assets. Obviously there is a threshold somewhere, like if you have positive insider info on TSLA and you invest in a passive stock market index fund.
Looks like the prosecution is actually over the use of coinbase's confidential information for personal profit. ... I suppose the DOJ is of the view that coinbase itself trading on this information was just fine.
Curious about what would have happened had the protagonist managed to board the flight to India and get there ? Would the SEC and Coinbase been able to extradite or do anything then ?
I would rate the chances of an Indian (or Pakistani, or Bangladeshi) national being able to evade capture domestically in their home country in south asia as quite high.
In either country you can exist entirely in a cash-based economy with no digital records of your actual identity linked to any transactions or accounts if you put a bit of effort and thought into it.
Unless the fugitive was high enough profile that it would cause the US to really put pressure on the relevant local government to search out and capture them.
"cash-based economy with no digital records of your actual identity linked to any transactions or accounts"
Not that easy in India anymore for last few years with thinks like Aadhar/PAN card and almost every bank requiring those. Even small time vendors prefer payment using phone apps these days in India.
If someone had cooperative family members that could withdraw cash banknotes from their own accounts it would definitely be a lot easier.
have also seen a large number of reports of how easy it is to get a fraudulent aadhar card under a fake name, using fabricated paper documents as origins of identity, so that's a possible route
I think the likelihood of this working would also be much higher if someone relocated to a very rural location where the local economy is much more cash based. (eg: if you're from manipur, go find a medium sized town in the hills and don't draw any attention to yourself)
Am I reading the indictment correctly that they are actually being charged with defrauding Coinbase, and that they are not being directly charged with insider trading?
"ISHAN WAHI, 32, of Seattle, Washington, is charged with two counts of wire fraud conspiracy and two counts of wire fraud, each of which carries a maximum sentence of 20 years.
NIKHIL WAHI, 26, of Seattle, Washington, is charged with one count of wire fraud conspiracy and one count of wire fraud, each of which carries a maximum sentence of 20 years.
SAMEER RAMANI, 33, of Houston, Texas, is charged with one count of wire fraud conspiracy and one count of wire fraud, each of which carries a maximum sentence of 20 years."
Yeah from what I understand it seems like the charge comes from defrauding Coinbase
> As a result of the insider trading scheme, NIKHIL WAHI and RAMANI collectively generated realized and unrealized gains totaling at least approximately $1.5 million.
Is this a joke? Seriously. I thought this case was about people inside trading hundreds of millions of dollars.
You expect to go to jail for being caught stealing $1,000 from a cash register. So you shouldn't be surprised when you go to jail for stealing $1,500,000 in cryptocurrency.
It's nice that $1.5 million is pocket change to you, but it's still against the law to get even such as small - for you - sum by fraud, so SEC will prosecute it.
He shoud have just made fake Saylor and Musk youtube livestream videos instead . Those ppl make way more money and don't caught, hence why the scam will never go away.
Moral judgements aside, how is what Ishan Wahi did legally different than Nancy Pelosi purchasing millions worth of Nvidia stock ahead of the CHIPS Act vote? Is it a private/public sector difference?
The amounts in these insider trading schemes always seem small to me. $750k per person? If I had advance knowledge of all Coinbase listing announcements I'm pretty sure I could make more than that!
I mean one of the dudes was flying to india. 750k is probably enough to buy some rural property there and live the rest of your life off interest. The less money, the less radar signature.
People just don’t quit while ahead. They are confident that they are smart enough to keep their scheme going just a little bit longer. I mean 750K is almost good enough to retire in India and work as a freelancer or something. But no, they need a bigger house, bigger cars and what not.
At least according to levels.fyi an IC6 PM at coinbase can make around 500k/year in total comp.
So if the goal was to acquire a bunch of rural property in India and live off interest it seems that just working and saving for a few years would be a wildly less risky route.
Personally I don't think it's a good risk/reward calculus to try to commit potential felony offenses for levels money that are reasonably in line with what you could eventually get as your annual TC. I can understand a barista at starbucks committing fraud for 750k, but it doesn't seem quite worth it for a PM at one of the highest paying tech companies.
According to Glassdoor: "The typical Coinbase Product Manager salary is $210,576 per year." This guy was dumb AF to risk losing not just his cushy tech job, but potentially even his right to remain in the U.S depending of his legal status.
For a lot (not most) immigrants, the american dream is to cash out big time on salary/fraud/crime and then fuck back to whatever country they came from where cost of living is at ground floor to live it up. Maybe he was only 5 years away from that and just accelerated it.
Sure, but $7.5m is more money, and seems achievable. Dogecoin spiked 6% after its Coinbase listing announcement and Binance offers 50x leverage. And Coinbase listed 83 different things in 2021.
I doubt these guys were that afraid of law enforcement because nobody thought insider trading laws applied to crypto markets at the time. I guess they could be afraid that their source would get fired, but if you've already made 20x his salary then getting fired doesn't seem like a huge problem.
That was a painful read. An "investigation" made by an anonymous twitter user based on cherry-picked tweets, hearsays and full of speculations.
Many factual errors as well he didn't sell at all time high and the timeline doesn't match either. The claim regarding Litecoin increase and a supposed Bitfinex escape is made up as well.
OMG gimme a break, isn't crypto itself a huge insider-trading sort of market?
Why is this such a big deal for Coinbase unless there are other intentions behind this arrest?
This is a value judgement. If you find crypto to be unfair, there's a very simple solution that doesn't require bringing in guys with guns to deal out punishment. You can simply just not participate.
In an ideal world we could get rid of insider trading, but selectively punishing people just makes the problem worse and with so much of congress dominating the market I think it's quite clear the punishment is selective and itself incapable of being fair.
It is much worse to give the illusion of fairness than to let people freely choose whether the "fairness" of some market is enough to justify participating. Of course, this is just my opinion.
> This is a value judgement. If you find crypto to be unfair, there's a very simple solution that doesn't require bringing in guys with guns to deal out punishment. You can simply just not participate.
Ok. And I assume the welfare bills of crypto scam victims will be paid directly by crypto companies? What about hospital bills from attempted suicides? If you want crypto to be its own special island, fine, but you have to accept the costs of dealing with all the externalities.
> but you have to accept the costs of dealing with all the externalities.
cost benefit analysis seems rather simple to me. You either pretend you can govern money into a better place using vast amounts of precious resources, such as time and political capital of our central planners, or you celebrate that no one has reasonable expectations that crypto is a safe market and allow it to continue to be an unsafe market which will either die or sort itself out with market pressures.
We're not talking about necessary resources like food land or shelter here. Crypto can live or die by its own merits and to pretend governing into the remarkably unfair landscape that is modern finance is worth the resources necessary, seems to me, to be easily dismissed as anything approaching reasonable.
Crypto will very likely continue to get more governance, but that's not good or unexpected. It's just centralized power doing what centralized power does, which is expand its power and reach.
Coinbase has an interest in not having their information abused, and when an employee granted access to that information abuses it it's fraud. It has nothing to do with crypto or insider trading regulations.
Hmm. Is this actually "insider" knowledge? I personally question the validity of this charge. This employee had knowledge of what COINBASE was going to do with the currency (ie, list it). He had no fiduciary responsibility as pertaining to the coin itself.
This is like knowing that Warren Buffer is going to say good thing about Microsoft tomorrow, and buying it today as a result (expecting it to rise). Is that actually illegal?
Your Warren Buffet example would absolutely be illegal.
Trading on the basis of material non-public price-sensitive information or tipping someone off so they trade is market abuse (ie illegal) in Europe. In the US, the rules are a little more complex but basically yes it is illegal (if that's what he did).
You absolutely don't have to have fiduciary responsibility, and you don't have to be an official insider, you simply have to trade on the basis of material non-public price-sensitive information in a product that's covered by the regulations or give that price-sensitive information to someone else in the form of a tip (with some expectation in the US of benefitting iirc).
> Your Warren Buffet example would absolutely be illegal.
My understanding is that it very much depends upon how the information was obtained. If I, as a third party, overhear Warren talking in a restaurant, that’s very different from hearing it during a Berkshire board meeting.
That's one of the things I was handwaving over when I said "in the US it's more complicated". In the context of being an employee and hearing the information in your job it would pretty much always be illegal.
If Joe Bloggs ran the autocue screen and got an advance copy of the speech, would it be illegal?
What if he overheard Buffet practicing his speech and bought it - would that be illegal?
If he were to tweet "I Joe Bloggs heard Buffett saying he is about to say something good about Microsoft" and then buy a few seconds later, would that be public information?
When does public information change from being private information to being public information nobody has noticed?
This article [0] seems at odds with your statement.
> Dirks v. SEC, 463 U.S. 646 (1983) was a pivotal U.S. Supreme Court decision regarding this type of insider trading. In Dirks, the Court held that a prosecutor could charge tip recipients with insider trading liability if the recipient had reason to believe that the information’s disclosure violated another’s fiduciary duty and if the recipient personally gained from acting upon the information. Dirks also created the constructive insider rule, which treats individuals working with a corporation on a professional basis as insiders if they come into contact with non-public information.
Then what about groups that do short reporting, they do an investigation into a company, take a short position, then release that information to the public? It sounds like that would fall under your definition.
The research they did would be obtainable from public sources rather than being classified as material non-public. That said, if you worked for (say) Pershing Square and knew Bill Ackman was about to announce a short in some stock and you traded it is your personal account that would absolutely be illegal.
You need to remember that Coinbase is a regulated entity like other financial institutions and TFA clearly mentions that the insider was part of a small set of employees that had access to info that the rest of the employees did not have access to:
> Beginning at least in August 2021 and continuing through May 2022, ISHAN WAHI was a member of a private Coinbase messaging channel reserved for a small number of Coinbase employees with direct involvement in the Coinbase asset listing process. The private channel was used to discuss, among other things, “exact announcement / launch dates + timelines” that Coinbase did not wish to share with all of its employees.
If your knowledge is privileged an non public, and might reasonably impact share prices either way, yes it is illegal. Not a lawyer, but your Buffet example above would be something I'd either run through compliance before traiding or I just wouldn't trade at all before said whatever he planned to say.
Source: Countless of SOX-mandatory insider trading trainings and falling under rules covering restricted traiding windows at US listed companies.
If I remember my minimal insider trading training it’s legal if you aren’t an insider. So the example I remember is if you overhear insiders talking in an elevator and trade, that’s legal. If they tell you, that’s illegal.
There are people who mirror the disclosures of trades from Pelosi and others. But by then it’s not possible to realize all the gains.
This has nothing to do with fiduciary duty. He defrauded Coinbase and is being charged for that. Deliberately misappropriating privileged information like that is absolutely a crime.
It's not confirmed to be illegal until they get a conviction. So we will find out! It will be an interesting case. I'd wager they do get convicted but we'll see.
1) Do the alledged facts meet the legal requirements for the crimes charged?
2) Are the alledged facts true?
A trial is focused on question 2. A jury is called on to make a determination of the facts of the case, they will be instructed on what is/isn't illegal and not expected to make any decision regarding questions of law.
Question 1 can be answered in summary judgment before you ever call a jury.
Question 1 can also be answered through the appeals process long after a guilty verdict is given.
A jury can decide if something _should_ be illegal and base their verdict on that. Meaning that the jury is also considering point 1 and whether this specific case should be illegal, regardless of how clear the law is on the subject.
Beats me, I'm no lawyer. But it seems plausible to me that his intention was to avoid or at least delay getting fired rather than intentionally fleeing law enforcement specifically.
> On May 11, 2022, Coinbase’s director of security operations emailed ISHAN WAHI to inform him that he should appear for an in-person meeting relating to Coinbase’s asset listing process at Coinbase’s Seattle, Washington office on Monday, May 16, 2022. ISHAN WAHI confirmed he would attend the meeting.
> On the evening of Sunday, May 15, 2022, ISHAN WAHI purchased a one-way flight to India that was scheduled to depart the next day shortly before ISHAN WAHI was supposed to be interviewed by Coinbase. […] Prior to boarding the May 16, 2022 flight to India, ISHAN WAHI was stopped by law enforcement and prevented from leaving the country.
[1]: https://twitter.com/cobie/status/1513874972552355846