SEC, Wahi brothers on the verge of settlement in Coinbase insider trading case

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A former product manager at Coinbase (NASDAQ: COIN), Ishan Wahi, and his brother Nikhil Wahi appear to be on the verge of a settlement with the U.S. Securities and Exchange Commission (SEC) over the insider trading charges brought against them last July, according to court filings delivered to the United States District Court Western District Of Washington Seattle Division on Monday.

The SEC and the Wahis filed a joint motion asking that the regulator be given more time to respond to the Wahis’ February motion to have the charges dismissed based on the fact that the SEC now has “an agreement in principle with Ishan Wahi to resolve all of the SEC’s claims in this matter.”

This is not a definitive end but does signal the likelihood of a settlement being reached between the SEC and Ishan and his brother Nikhil in the coming months. With regards to the latter, the filing stated: “The SEC and Nikhil Wahi are also in good faith discussions that may resolve the SEC’s claims.”

The case against the Wahis

The SEC brought its civil case against the Wahi brothers and a friend named Sameer Ramani back in July 2022 for allegedly making more than $1.1 million profit from trading tokens before Coinbase announced they would be listed on the exchange, in the knowledge that their value would subsequently rise.

The same month, the U.S. Attorney’s Office for the Southern District of New York brought criminal charges against the trio, charging them with wire fraud conspiracy and wire fraud—“the first-ever insider trading case involving cryptocurrency markets.”

This February, Ishan, the ex-Coinbase staffer, pleaded guilty to two counts of conspiracy to commit wire fraud in the criminal case while simultaneously instructing the legal representatives for him and his brother to file a motion with the District Court for the Western District of Washington to dismiss the civil charges brought against them by the securities regulator.

The SEC’s charges were based on the regulator’s view that “at least nine” of the tokens involved in the insider trading scandal were unregistered securities; the Wahis disagreed. In their motion to dismiss the charges, the brothers claimed that the SEC’s case against them is an attempt by the regulator to “seize broad regulatory jurisdiction over a massive new industry via an enforcement action against a 32-year-old former Coinbase employee and his kid brother.”

In the 81-page dismissal motion, the Wahis’ attorneys attempt to methodically debunk the SEC’s claims that most digital tokens meet the Howey test for identifying a security.

The original deadline for the SEC to reply to the brothers’ motion would have been April 6, but it seems the two opposing parties have now come to an agreement and want a little more time to iron out the details of the likely settlement, which is why they’ve jointly requested the SEC’s date to oppose the motion be moved to June 15—the Wahis would then have until July 15 to respond to whatever the SEC puts forward.

SEC moves on Coinbase

This latest update in the Coinbase insider trading saga comes a couple of weeks after the SEC informed the exchange itself to also expect imminent legal action for violating federal securities laws.

Coinbase disclosed that on March 22, it received a Wells notice—a letter the SEC sends after an investigation stating its intention to bring an enforcement action—informing the platform that it had identified securities violations relating to “aspects of the Company’s spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet” products.

According to Coinbase’s chief legal officer Paul Grewal, who posted a lengthy blog post responding to the Wells notice, the SEC did not provide a lot of detail on the specifics of the impending charges, but he said Coinbase would welcome a legal fight “to provide the clarity we have been advocating for and to demonstrate that the SEC simply has not been fair or reasonable when it comes to its engagement on digital assets.”

In light of the charges brought by the SEC against the Wahi brothers, which noted at the time that “at least nine” of the tokens involved in the insider trading scandal were unregistered securities, it’s perhaps no surprise that an action against Coinbase was just a matter of time.

If the SEC does accuse Coinbase of trading in unregistered securities, it seems they will be in for a fight. However, if the conclusion of the Wahi civil case is anything to go by, with the brothers likely paying a settlement and, in doing so, tacitly agreeing that the assets involved were securities, it appears the SEC is gradually winning its argument about certain digital assets falling within its remit.

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