The world’s first case of crypto insider trading has escalated to a nasty spat between Coinbase and the SEC. Here’s what happened and how it impacts you.

Back in May, Ishan Wahi, 32, became the first person to ever be arrested for crypto insider trading.

And yet, somehow, that’s the least interesting part of this whole saga.

Because what started as an illegal tip between Ishan and his little brother rapidly escalated into a nasty shouting match between Coinbase and its highly dysfunctional work husband, the SEC.

So, what happened? What did Ishan do, and how did he get caught? And how did a cut-and-dry case of insider trading lead to a vicious spat between Coinbase and the SEC, a litany of lawsuits, and the potential downfall of Coinbase just one year after its IPO?

Let’s investigate Coinbase’s messy beef with the SEC.

TL;DR: Coinbase’s Current Legal Trouble and Beef with the SEC

Here’s the gist of what happened.

Back in April, a Coinbase employee was (allegedly) caught insider trading by the crypto community on Twitter. A month later, the Department of Justice hit him and his two conspirators with criminal charges related to insider trading.

However, the SEC — which regulates, you know, securities and exchanges — also filed civil charges against the trio, claiming that nine of the 25 assets involved in the scheme were securities.

This blindsided Coinbase, since for years they’ve had a tenuous but steady agreement with the SEC to not regulate crypto assets traded on the platform as securities. Because if they were trading securities, Coinbase would suddenly have to comply with a whole new set of SEC rules (or risk a $100 million fine like BlockFi).

So, in frustration, Coinbase published a pretty salty blog slamming the SEC for essentially being bad communicators and demanding that they just tell us what the rules are and we’ll follow them, dammit.

But the SEC has essentially Rickrolled Coinbase, telling them, “You know the rules and so do we.” They’ve reportedly started probing Coinbase for securities violations all along, which from Coinbase’s point of view, is like your mom tearing apart your room looking for weed after she said she was cool with it.

Yeah, it’s a huge mess. But there are merits on both sides, and we should talk about them since the outcome will affect everyone who trades crypto.

So let’s unpack it in two parts: the insider trading piece and the securities fraud piece.

1. The Insider Trading Piece

OK, so, what happened to trigger this whole thing? Who was insider trading and how?

What Happened at Coinbase?

According to the DoJ’s allegations, a 32-year-old product manager at Coinbase named Ishan Wahi had advance knowledge of which cryptos were about to be added to Coinbase’s list of tradable assets — coins like TRIBE, ALCX, and GALA.

He also knew that their price would likely skyrocket once the news broke.

So, between June 2021 and April 2022, he (allegedly) tipped off his brother Nikhil and their friend Sameer so they could buy up the coins right before Coinbase announced their inclusion on the roster. In total, the scheme allegedly netted them over $1.5 million in profits.

Eventually, a well-known member of the crypto community, “Cobie,” spotted their scheme and posted about their shady activity on Twitter.

Cobie on Twitter


Soon, the post blew up — and Coinbase chimed in to say they’d investigate.

A few weeks later, on May 11, 2022, Coinbase’s director of security operations called Ishan Wahi to an in-person meeting to discuss “Coinbase’s asset listing process.”

Evidently realizing the jig was up, Wahi RSVP’d “yes” — and the night before the meeting, purchased a one-way ticket to India. He also warned his brother and Sameer about what happened.

But the Wahi brothers were arrested the following morning, while Ramani reportedly remains at large.

Ishan Wahi pled “not guilty” on August 3, 2022.

How Does this Case Compare to the Insider Trading Case at OpenSea?

It’s pretty much the same story.

If you haven’t heard, the DoJ filed charges on June 1, 2022, against Nathaniel Chastain, a former product manager at NFT marketplace OpenSea, related to insider trading.

Just like Ishan, Nate knew which NFTs were about to be listed on OpenSea’s homepage. So he’d secretly buy them up beforehand and resell them once they gained traction within the community (allegedly).

Though his profits were only $67,000, Nate still faces up to 40 years in prison for wire fraud and money laundering.

I think I’ve Got a Grasp of It, but Could We TL;DR Insider Trading?


As the name implies, insider trading is when you trade financial assets based on privileged, inside information that hasn’t been made available to the public. It’s basically “cheating” at investing.

Perhaps the most high-profile case of the 21st century is Martha Stewart’s. In 2001, she got a tip from the CEO of a pharmaceutical company that their new wonder drug had just been rejected by the FDA. The public didn’t know yet, so the CEO was calling up friends and insiders, advising them to dump their shares before prices fell.

They did and, thankfully, they all got busted. And despite hiring an army of white-shoe lawyers, Martha went to jail.

Part of why U.S. regulators take insider trading so seriously —  and why the punishment is so severe — is for two reasons:

  1. It hurts the free market, and
  2. It’s easy to do.

You can enforce insider trading but it’s extremely hard to prevent. Every publicly traded company on earth has some amount of privileged information that could affect share prices — all it takes is one bad apple making a phone call to the outside.

So the best form of prevention, then, is a deterrent in the form of swift and severe justice.

What Happened Next? What Was the Immediate Fallout?

For starters, both the DoJ and the FBI took the opportunity to remind criminals that the blockchain was no place to hide.

“Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street,” said Damian Williams, the United States Attorney for the Southern District of New York.

FBI Assistant Director Michael J. Driscoll said: “Today’s action should demonstrate the FBI’s commitment to protecting the integrity of all financial markets — both ‘old’ and ‘new.’”

Coinbase remained tight-lipped on the arrest, merely citing that they “cooperated” with the DoJ and SEC on the investigation. They’ve also scrubbed any mention of Wahi on the site or the site’s blog.

Instead, Coinbase’s main focus has been slamming the SEC for what the agency said in their report.

2. The Securities Piece (and Ongoing Beef with the SEC)

Some context first.

Ever since its founding in June of 2012, Coinbase has strived to be the obedient “good guy” of crypto, following the law to a T.

  • When the IRS subpoenaed them in 2018 for the records of crypto tax-dodgers, they complied.
  • When the SEC told them to keep their crypto lending program Lend off the market in 2021, they complied.
  • When the SEC has intermittently subpoenaed records and employee testimony for various purposes, they complied.

Basically, Coinbase’s whole strategy with regulators has been, “Look, we don’t know what the rules are because you guys haven’t written the rules about regulating crypto. Even still, we’re an open book — just tell us if we’re doing something you don’t approve of.”

Case in point, Coinbase consistently invites the SEC to meet with them and look into their practices — something many financial institutions wouldn’t even dream of. They even let the SEC examine their selection process for new cryptos to ensure no securities were listed on the platform.

But Coinbase leadership claims that the SEC has been frustratingly vague and uncooperative, refusing to clarify whether the assets Coinbase lists are securities or not.

Brian Armstrong on Twitter


So, what are securities, and why does it matter?

What Are Securities?

A security is a tradable financial asset (stocks, bonds, options, futures, dollar bills) that passes the Howey Test.

The asset passes the Howey Test if the trading of that asset involves:

  • An investment of money.
  • A common enterprise (i.e., shared goals between investors and those selling the asset).
  • Reasonable expectation of profits.

Stocks are securities because they cost money, involve a common enterprise between investors and the company, and aren’t just traded for the fun of it — they’re traded for money.

NFTs, on the other hand, aren’t considered securities because people don’t necessarily buy them to make a buck. Many people buy them just to have them and enjoy them.

Now, the reason all this matters is because securities are subject to a whole host of laws and regulations. There’s registration, regular reporting, tax implications, and much, much more.

Think of it like owning a bike versus owning a car.

  • If you own a bike, nobody really cares. You don’t have to register it, pay taxes, get a license or anything. You’re basically free from “regulation.”
  • If you buy a car, however, you have to register it, insure it, pay an annual tax, get a driver’s license, get annual emissions checks, and more.

So even though both bikes and cars are vehicles, one is totally unregulated and one is regulated like crazy.

So what is crypto? A bike or a car?

Coinbase has added over 50 cryptos for trade since 2012, and according to their narrative, they’ve asked the SEC each time:

Hey, is this a bike or a car? LMK, I gotta know if I need to go to the DMV.

When they listed DOGE:

Hey, is this a bike or a car? LMK, I gotta know if I need to go to the DMV.

When they listed TRIBE:


Lacking guidance, Coinbase just assumed that all 50+ cryptos were bikes…

Coinbase each time they list a token that isn’t registered as a security | Source:


So you can imagine their surprise — and frustration — when the SEC claimed, out of the blue, that at least nine of them were cars, heavily implying that Coinbase was about to get in big, big trouble for not registering them with the “DMV”:

“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.”

In response, Coinbase published two blogs: one saying, “NO, these are all BIKES,” and a follow-up saying, “Crypto needs its own rulebook for what qualifies as a car.”

But the SEC seems to have predicted this response, saying, “We’ll continue to ensure a level playing field for investors, regardless of the label placed on the securities involved.”

In other words, these nine cryptos are securities and have always been — regardless of what Coinbase or their creators call them.

So, Who’s Right: Coinbase or the SEC?

Subjectively speaking, there’s merit to both sides.

I can already see some version of the following argument playing out in a series of future blogs and press releases:

  • Coinbase: “How did we break the rules if there were no rules?”
  • The SEC: “The rules were clear as day. You just thought they didn’t apply to you and that was your mistake.”
  • Coinbase: “We’ve been an open book since 2012. We literally invited you to tell us if we were ever in violation of securities law at any point and you basically ignored us.”
  • The SEC: “We are not your personal compliance department. Learn the law and follow it.”
  • Coinbase: “We’re the good guys of crypto. We’ve always played ball when asked. Why use us as your whipping boy??”
  • The SEC: “Good guys who violate securities law?”


What Happens Next?

Well, in the short term, Coinbase is in trouble.

They’ve already laid off 1,100 employees this year — 18% of their total workforce — and the recent scandal and regulatory mess has led to a steep drop in share prices.

As if that weren’t enough, the SEC’s accusations have opened the floodgates for lawsuits to come pouring in. In just weeks there have been three so far.

Class action lawyers when the SEC accuses Coinbase of being an unregulated securities exchange | Source:


At this rate, it may not take long for the SEC to formally penalize Coinbase for trading unlisted securities. If they do, I imagine that the fine will be even higher than the $100 million the SEC charged BlockFi for its illicit crypto lending practice.

In short? The SEC could very well destroy Coinbase for its extensive backlog of unregulated securities trading. Or, at the very least, give it a vicious whipping in the town square for every other exchange to see.

The Bottom Line: What Should Crypto Traders Take Away from All This?

I think there are two key takeaways for crypto traders.

  1. If you store your crypto on Coinbase, you might want to consider migrating it to a different wallet (here are six of our favorites). There’s a chance that hackers will target Coinbase in its vulnerable state.
  2. Regulation is coming. Since February 2022, U.S. regulators have brought justice to BlockFi, OpenSea, and Coinbase, demonstrating both their understanding — and willingness to step into — the blockchain.

But as Coinbase themselves admit, increased regulation of crypto is a good thing.

“Crypto represents the next wave of innovation within the markets themselves — and whatever country encourages that innovation while also keeping investors safe will reap enormous benefits.”

Featured image: create jobs 51/

BlockFi Bankruptcy Notice -On November 10, 2022, BlockFi announced that it had to suspend withdrawals from its platform due to the FTX liquidity crisis. As a result, consumers should not be using the BlockFi platform. As of November 28, 2022, BlockFi officially declared bankruptcy.

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About the author

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Chris helps people under 30 prosper - both financially and emotionally. In addition to publishing personal finance advice, Chris speaks on the topics of positive psychology and leadership. For speaking inquiries, check out his CAMPUSPEAK page, connect with him on Instagram, or watch his TEDx talk.