SEC beefs up crypto enforcement unit, charges insider traders
25 July 2022 US
Image: AdobeStock/Kristina Blokhin
The US Securities and Exchange Commission (SEC) has announced that it will reinforce its powers of supervision and investigation through its Crypto Assets and Cyber Unit with the appointment of 20 new specialists to the division.
Through this expansion, the agency intends to strengthen its investor protection capacity linked to crypto markets and cyber-related threats, with particular focus on securities law violations linked to crypto asset offering, trading exchanges, broker-dealers and lending of crypto assets.
These measures will also reinforce its supervisory and enforcement powers related to decentralised finance, non-fungible tokens and stablecoin.
The SEC indicates that the division has filed more than 80 enforcement actions associated with fraudulent and unregistered crypto asset platforms and crypto asset offers, which have resulted in total penalties or monetary relief totalling more than US$2 billion.
This enhanced oversight programme, announced by the US securities market regulator on Friday 21 July, will particularly target “gatekeeping accountability” and the failings of financial gatekeepers to fulfil their obligation to ensure financial probity.
Gatekeepers such as accountants and attorneys are often the first line of defence against misconduct, the SEC states, and when they fail to live up to their responsibilities, investors often suffer and the integrity of financial markets is called into question.
The agency has brought a number of recent cases against gatekeepers that have themselves been engaged in malpractice, have attempted to cover up wrongdoing or they have failed to implement compliance obligations and procedures.
The SEC has also announced charges against three persons for alleged insider trading violations linked to digital assets, including a former Coinbase product manager.
Its complaint states that the Coinbase manager, Ishan Wahi, repeatedly tipped off his brother Nikhil Wahi and another person, Sameer Ramani, about the content of forthcoming listings announcements.
This alleged offence, which took place while Ishan Wahi helped to coordinate Coinbase’s public listings announcements, involved sharing details of crypto assets or tokens that would soon be made available for trading.
The SEC’s complaint maintains that, in doing so, Ishan Wahi acted contrary to Coinbase corporate policy, which specifies that Coinbase treats this information as confidential and its employees must not trade on the basis of this information, or “tip” this information to others.
The SEC statement indicates that this “long-running insider trading scheme generated illicit profits amounting to more than US$1.1 million.
Speaking about this enforcement action, the SEC’s director of its enforcement division Gurbir S Grewal says: “We are not concerned with labels, but rather the economic realities of an offering. In this case, those realities affirm that a number of those crypto assets were securities and, as alleged, the defendants engaged in typical insider trading ahead of their listing on Coinbase.”
“Rest assured we will continue to ensure a level playing field for investors, regardless of the label placed on the securities involved,” he says.
Carolyn Welshhans, acting chief of the SEC enforcement division for crypto assets and enforcement division, adds: “In nearly a year, the defendants collectively earned over US$1.1 million in illegal profits by engaging in an alleged insider trading scheme that repeatedly used material, non-public information to trade ahead of Coinbase listing announcements.”
“As today’s case demonstrates, whether in equities, options, crypto assets or other securities, we will vindicate our mission by identifying and combating insider trading in securities wherever we see it.”
Through this expansion, the agency intends to strengthen its investor protection capacity linked to crypto markets and cyber-related threats, with particular focus on securities law violations linked to crypto asset offering, trading exchanges, broker-dealers and lending of crypto assets.
These measures will also reinforce its supervisory and enforcement powers related to decentralised finance, non-fungible tokens and stablecoin.
The SEC indicates that the division has filed more than 80 enforcement actions associated with fraudulent and unregistered crypto asset platforms and crypto asset offers, which have resulted in total penalties or monetary relief totalling more than US$2 billion.
This enhanced oversight programme, announced by the US securities market regulator on Friday 21 July, will particularly target “gatekeeping accountability” and the failings of financial gatekeepers to fulfil their obligation to ensure financial probity.
Gatekeepers such as accountants and attorneys are often the first line of defence against misconduct, the SEC states, and when they fail to live up to their responsibilities, investors often suffer and the integrity of financial markets is called into question.
The agency has brought a number of recent cases against gatekeepers that have themselves been engaged in malpractice, have attempted to cover up wrongdoing or they have failed to implement compliance obligations and procedures.
The SEC has also announced charges against three persons for alleged insider trading violations linked to digital assets, including a former Coinbase product manager.
Its complaint states that the Coinbase manager, Ishan Wahi, repeatedly tipped off his brother Nikhil Wahi and another person, Sameer Ramani, about the content of forthcoming listings announcements.
This alleged offence, which took place while Ishan Wahi helped to coordinate Coinbase’s public listings announcements, involved sharing details of crypto assets or tokens that would soon be made available for trading.
The SEC’s complaint maintains that, in doing so, Ishan Wahi acted contrary to Coinbase corporate policy, which specifies that Coinbase treats this information as confidential and its employees must not trade on the basis of this information, or “tip” this information to others.
The SEC statement indicates that this “long-running insider trading scheme generated illicit profits amounting to more than US$1.1 million.
Speaking about this enforcement action, the SEC’s director of its enforcement division Gurbir S Grewal says: “We are not concerned with labels, but rather the economic realities of an offering. In this case, those realities affirm that a number of those crypto assets were securities and, as alleged, the defendants engaged in typical insider trading ahead of their listing on Coinbase.”
“Rest assured we will continue to ensure a level playing field for investors, regardless of the label placed on the securities involved,” he says.
Carolyn Welshhans, acting chief of the SEC enforcement division for crypto assets and enforcement division, adds: “In nearly a year, the defendants collectively earned over US$1.1 million in illegal profits by engaging in an alleged insider trading scheme that repeatedly used material, non-public information to trade ahead of Coinbase listing announcements.”
“As today’s case demonstrates, whether in equities, options, crypto assets or other securities, we will vindicate our mission by identifying and combating insider trading in securities wherever we see it.”
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