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Home > Securities Litigation > First-of-its-Kind Crypto Insider Trading
Conviction


FIRST-OF-ITS-KIND CRYPTO INSIDER TRADING CONVICTION

By Julia Alonzo and Michael Guggenheim on January 11, 2023 Posted in Corporate
Governance, Financial Services, Fraud, Securities Litigation, White Collar

In the first insider trading case involving cryptocurrencies, a crypto trader
was convicted of insider trading in federal district court and recently
sentenced to 10 months in prison.

The defendant, Nikhil Wahi, pleaded guilty in the U.S. District Court for the
Southern District of New York to illegally trading on information tipped by his
brother, a former Coinbase product manager. According to his plea, Wahi used
that information to trade on 40 different kinds of crypto assets were scheduled
to be listed on the Coinbase platform between April 2021 and July 2022, when he
was arrested. Prosecutors alleged that Wahi used those tips to sell crypto
assets for a profit. Under the terms of the plea agreement, Wahi agreed to serve
ten months in prison. Wahi’s brother, Ishan Wahi, has pleaded not guilty and is
due to appear in court in March.



While insider trading is hardly an uncommon charge, the conviction represents
the first insider trading conviction in the cryptocurrency market – but it is
unlikely to be the last. Following Wahi’s guilty plea, the U.S. attorney for the
Southern District remarked that the sentence “makes clear that the
cryptocurrency markets are not lawless.”  Indeed, ever increasing scrutiny over
the crypto industry has come from both prosecutors– including in the infamous
FTX case – but also in the regulatory context. Just this past summer, the U.S.
Commodity Futures Trading Commission Chairman urged congressional action on
crypto regulation, while the SEC Chair Gary Gensler has been clear that he plans
to use the SEC’s powers to increase oversight of the crypto industry, including
in enforcing conflict of interest laws.

Wahi’s conviction appears to be the latest in a series of government actions
seeking to increase oversight of the cryptocurrency market – and deter possible
criminal activity. While his insider trading conviction follows longstanding
enforcement theories, the government could use novel approaches as it grapples
with how to regulate the emerging crypto industry. This possibility underscores
the important role that outside counsel can play in helping companies and
individuals succeed in the crypto market while minimizing prosecutorial risk.

Tags: crypto assets, crypto market, crypto regulation, cryptocurrency, financial
fraud, Insider Trading, Securities Regulation, U.S. Commodity Futures Trading
Commission, U.S. District Court for the Southern District of New York
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