US court rules that trading crypto on platforms like Coinbase constitutes securities transactions

A US court recently made a decision that could have significant consequences for the crypto industry when it ruled that trading cryptos on platforms like Coinbase constitutes securities transactions.

The Wahi Insider Trading Case: A Mammoth Loss For Coinbase

In an insider trading case involving Coinbase’s former product manager Ishan Wahi, his brother Nikhil Wahi, and their friend Sameer Ramani, U.S. District Court Judge Tana Lin of the Western District of Washington held… pic.twitter.com/0OzmbkFM6m

— John Reed Stark (@JohnReedStark) March 4, 2024

Crypto trading constitutes securities transactions, says US court

The judgment emerged during a case involving Coinbase’s former product manager, Ishan Wahi. Wahi pleaded guilty to accusations of sharing insider information in order to profit from crypto trading. According to case details, he shared information with his brother, Nikhil Wahi, as well as their associate Sameer Ramani.

Focusing particularly on Ramani’s actions, the court pointed out that even secondary market transactions of cryptocurrencies are considered investment contracts under the Howey test. This became clear through a default judgment against Ramani, who allegedly left the country in order to evade criminal charges tied to insider trading.

This development comes almost a year after the US securities watchdog, the Securities and Exchange Commission (SEC) settled with the Wahi brothers in May 2023. At the time, the case was called the first recorded case of insider trading in the crypto market.

Now, however, the judgment against Ramani brought additional importance for the crypto industry, as it challenged its stance that not all cryptos are securities, as Coinbase and many others continue to claim. The industry has been insisting for years that the crypto sector should not fall under the SEC’s jurisdiction.

For years now, the SEC chair Gary Gensler argued that most cryptos act as securities, and that crypto exchanges must register with the SEC in order to be able to legally operate. Now, the court’s new decision to classify crypto transactions as securities dealings echoes the past rulings. However, it also stands out for its direct implications regarding how cryptos are regulated and traded.

US court sends the Wahi brothers to prison

The court’s ruling prohibited Ramani from future violations, in addition to imposing a civil penalty that is twice the size the amount he gained from his actions. That puts his total fine at $1,635,204. In addition to that, the court ordered disgorgement of $817,602.

However, the court also declined the SEC’s request for prejudgment interest. As for Ishan Wahi, Coinbase’s former product manager, he was sentenced to 26 months in prison. The ruling was made last year, and the prosecutors argued that he shared confidential information with his brother and their friend regarding new crypto assets that Coinbase intended to list on its platform.

By investing in those assets, the brothers and their friend managed to profit after listings, when they sold the coins and tokens following price pumps.

Meanwhile, Nikhil Wahi, the brother of Coinbase’s former employee, was also ordered to pay nearly $470,000 to the US crypto exchange as his penalty for participating in an insider trading scheme. Nikhil Wahi also pleaded guilty to using confidential information to make trades back in September 2021. In addition to having to pay Coinbase, he was also sentenced to 10 months in prison for wire fraud conspiracy, for which he was convicted in January 2022.