US court rules crypto trades as securities in Coinbase case

A US court ruled that trading crypto assets on platforms like Coinbase constitutes securities transactions.

This judgment emerged from a case involving Ishan Wahi, a former Coinbase product manager who pleaded guilty to sharing insider information in order to profit from cryptocurrency trading, his brother Nikhil Wahi, and their associate Sameer Ramani.

The court’s verdict, particularly focusing on Ramani’s actions, highlights the view that even secondary market transactions of crypto tokens are considered investment contracts under the Howey test. This clarification came through a default judgment against Ramani, who is believed to have left the country to evade criminal charges linked to insider trading.

This legal development is notable against the backdrop of the Securities and Exchange Commission’s (SEC) settlement with the Wahi brothers in May 2023, in what was referred to as the first insider trading case in the crypto market. The judgment against Ramani gains further importance as it challenges the crypto industry’s stance, supported by platforms like Coinbase, that not all cryptocurrencies are securities and thus should not fall under the SEC’s jurisdiction. SEC Chair Gary Gensler has consistently argued that most cryptocurrencies act as securities and that exchanges should be registered with the SEC.

The court’s decision to classify crypto transactions as securities dealings echoes previous rulings but stands out for its direct implications on how cryptocurrencies are traded and regulated. In addition to prohibiting Ramani from future violations, the court imposed a civil penalty of twice the amount of the gains derived from his actions, totaling $1,635,204, and ordered disgorgement of $817,602. However, it declined the SEC’s request for prejudgment interest.

Ishan Wahi, who served as Coinbase’s product manager, was sentenced last year to 26 months in prison. Prosecutors said he shared confidential information with his brother and their friend about new digital assets that Coinbase was planning to list on its platform.

Nikhil Wahi, the brother of the former Coinbase employee, was also ordered by a New York District Court to pay nearly $470,000 to the US cryptocurrency exchange for his participation in the insider trading scheme. He pleaded guilty to making trades using confidential information in September 2021 and was then sentenced to 10 months in prison for his involvement in a wire fraud conspiracy after being convicted in January 2022.