Judge upholds SEC securities claim in default order in Coinbase insider trading case

Judge Tana Lin partially granted the United States Securities and Exchange Commission's (SEC) request for a default judgment against Samer Ramani, one of the defendants in the lawsuit filed by former Coinbase product manager Ishan Wahi and co-defendants. At the same time, Lin found that secondary sales of some cryptocurrencies were securities.

The SEC has sought a default judgment against Ramani, who appears to have fled the United States and failed to respond to subpoenas. Ishan Wahi and his brother Nikhil were indicted in July 2022 for insider trading and wire fraud. The trades in question are tokens intended to be listed on Coinbase, which was created after Ishan Wahi informed his affiliates of his plans for a cryptocurrency exchange.

Judge Lynn, of the U.S. District Court for Western Washington in Seattle, agreed to the SEC's request for a permanent injunction against Ramani, as well as requests for civil penalties and disgorgement, but did not agree to pay the defendant prejudgment interest on the forfeited funds. Nikhil Wahi and Ramani reportedly earned $1.5 million from their illegal business.

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The SEC said at least nine of the 25 tokens that Nikhil Wahi and Ramani invested in on Ishan Wahi's advice were securities. The nine tokens were Powerlger (POWR), Kromatika (KROM), DFX Finance (DFX), Amp (AMP), Rally (RLY), Rari Governance Token (RGT), DerivaDAO (DDX), LCX and XYO. Lynn wrote in the order:

“The allegations in the FAC assert that the tokens Ramani traded were offered and sold as investment contracts and thus were securities.”

The FAC may refer to the first amended complaint, but not specified in the order. However, Lin accepted the SEC's argument in its entirety and repeated the statements in sequence without challenging them. Patrick Daugherty, head of Foley & Lardner's digital assets practice, told Cointelegraph:

“Judge Lynn mischaracterized the key holding in SEC v. WJ Howey Co. because she failed to cite the Supreme Court's requirement of a “contract, transaction, or plan” (citing the Hawaii case). Without a contract, transaction, or plan, there is no time. “Investment Contract”

Coinbase's chief legal officer, Paul Grewal, agreed with this conclusion, saying at X that “the SEC was pushing on the case with a completely open door.” Grewal wrote:

“Not only is no one pushing what the SEC says, but the judge is required under applicable law to take everything the SEC says in the complaint as true, no matter how far-fetched or clearly wrong.

Ishan Wahi initially pleaded not guilty to insider trading charges, but changed his plea to guilty in February 2023 in an agreement with the SEC. He was sentenced to two years in prison. His brother Nikhil was sentenced to 10 months.

Ramani's defense counsel, David Kornblau of Denton, who was named in the order, did not respond to Cointelegraph's inquiries by press time. When Cointelegraph tried to contact Ramani, the email address listed for Ramani in the same document was not receiving correspondence.

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