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

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Judge Tana Lin partially satisfied the United States Securities and Exchange Commission (SEC) request for a default judgment against Sameer Ramani, one of the defendants in the case of 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 requested a default judgment against Ramani, who appeared to have fled the United States and has not responded to court summonses. Ishan Wahi and his brother Nikhil were charged in July 2022 with insider trading and wire fraud. The trades in question were with tokens that were slated for listing on Coinbase made after Ishan Wahi informed his associates of the cryptocurrency exchange’s plans.

Lin, a judge in the U.S. District Court of Western Washington at Seattle, agreed to the SEC’s demands for permanent injunction against Ramani, as well as civil penalties and disgorgement, but did not agree that the defendant should pay prejudgment interest on the disgorged funds. Nikhil Wahi and Ramani allegedly made $1.5 million on their illegal trades.

Related: Crypto exchanges tackle insider trading after recent convictions

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

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

FAC may refer to First Amended Complaint, but it wasn’t specified in the order. Nevertheless, Lin accepted the SEC’s argument whole and repeated its outlines in her order without challenging them. Patrick Daugherty, head of the Foley & Lardner digital assets practice, told Cointelegraph:

“Judge Lin misstates the core holding of SEC v. W.J. Howey Co. because she neglects to mention the Supreme Court’s requirement of a “contract, transaction or scheme” (quoting the Howey case itself). Without a contract, transaction or scheme, there is no ‘investment contract,’ period. “

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

“Not only is there no one pushing back on anything the SEC says, the judge is required under the applicable rule to take everything the SEC says in the complaint as true. No matter how far fetched or plain wrong it is.”

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

Ramani’s defense counsel named in the order, David Kornblau at Denton’s, did not respond to a Cointelegraph enquiry by publication time. The email address listed in the same document for Ramani was not accepting mail when Cointelegraph tried to connect with Ramani.

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