SEC resolves blockchain insider trading case against Wahi brothers

Former blockchain product manager Ishan Wahi and his brother Nikhil Wahi have agreed to settle charges of insider trading brought against them by the United States Securities and Exchange Commission (SEC), the agency announced on May 30. The SEC has filed a motion for final judgment in the U.S. District Court of the Western District of Washington.

The brothers were accused of using knowledge of “at least” nine cryptocurrencies that would be listed on blockchain in the future to purchase before listing. The SEC filed a lawsuit against them on July 21, 2022. That agency is now demanding disgorgement of ill-gotten gains with interest.

SEC’s Division of Enforcement director Gurbir S. Grewal said in a statement:

“While the technologies at issue in this case may be new, the conduct is not. […] The federal securities laws do not exempt cryptocurrency securities from the prohibition against insider trading, nor does the SEC.”

The SEC announced in April that it had reached “an agreement in principle” with Ishan Wahi, who was sentenced to 24 months in prison by the U.S. District Court for the Southern District of New York on May 9. At the time, it was determined that Wahi had made up to $1.5 million through illegal trading. Nikhil Wahi was sentenced to ten months’ imprisonment in January by the same court.

The SEC’s suit alleged that the Wahis and another defendant, Sameer Ramani, had traded in “cryptocurrency securities.” That claim led to extensive controversy, with a U.S. Commodity Futures Trading Commission commissioner Caroline Pham warning that the classification of tokens “that could be described as utility tokens and/or certain tokens relating to decentralized autonomous Organizations (DAOs)” could “have implications beyond this single case.” Pham called the SEC action “regulation by enforcement.”

Today’s SEC settlement (i) doesn’t admit any legal conclusions about the security status of tokens; (ii) doesn’t require Wahi to pay any additional penalties (in addition to those due for separate criminal case); and (iii) includes immaterial injunction not to violate Section 10(b) pic.twitter.com/qHOfcaIVk2

— Rodrigo (@RSSH273) May 30, 2023

The case also led to a spate of amicus filings.

Related: blockchain files brief in SEC Wahi case, says it doesn’t sell securities but would like to

The Wahis filed a motion for the dismissal of the case in February, arguing that the SEC wrongly classified the tokens in question in the case, based on the Howey test and major questions doctrine. If the settlement is approved, the validity of the SEC’s claims will not be decided.

The settlement remains subject to court approval.

Magazine: Powers On… Insider trading with crypto is targeted — Finally! Part 1

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