Former Coinbase product manager and his brother settle charges of insider trading
The Securities and Exchange Commission (SEC) has announced that former Coinbase product manager Ishan Wahi and his brother, Nikhil Wahi, have agreed to settle charges of engaging in insider trading. The charges stem from their involvement in a scheme to trade ahead of multiple announcements related to at least nine crypto asset securities that would be made available for trading on the Coinbase platform.
Under the settlement, both Ishan and Nikhil Wahi have agreed to be permanently enjoined from violating Section 10(b) of the Securities Exchange Act and Rule 10b-5. They will also be required to pay disgorgement of ill-gotten gains, along with prejudgment interest. The disgorgement and prejudgment interest will be considered satisfied by the orders of forfeiture of the Wahi brothers’ assets in the criminal action, if approved by the court. The SEC has decided not to seek civil penalties due to the Wahi brothers’ prison sentences.
The SEC’s complaint, filed on July 21, 2022, alleged that while working at Coinbase, Ishan Wahi coordinated the platform’s public listing announcements, which included information about crypto assets available for trading. Coinbase treated this information as confidential and prohibited employees from trading on it or tipping others. However, between June 2021 and April 2022, Ishan allegedly shared the timing and content of upcoming announcements with his brother, Nikhil, and his friend, Sameer Ramani. Nikhil Wahi and Ramani would then purchase at least 25 crypto assets, including nine securities, ahead of the announcements and sell them shortly after for a profit.
According to Gurbir S Grewal, Director of the SEC’s Division of Enforcement, “While the technologies at issue in this case may be new, the conduct is not. We allege that Ishan and Nikhil Wahi, respectively, tipped and traded securities based on material non-public information, and that’s insider trading, pure and simple.” Grewal emphasized that the federal securities laws do not exempt crypto asset securities from insider trading regulations.
Subject to court approval, Ishan and Nikhil Wahi have consented to the entry of final judgments that permanently enjoin them from violating the Securities Exchange Act and Rule 10b-5. In the related criminal action, both individuals have pleaded guilty to conspiracy to commit wire fraud. Ishan Wahi has been sentenced to 24 months in prison and ordered to forfeit 10.97 ether and 9,440 Tether, while Nikhil Wahi has been sentenced to 10 months in prison and ordered to forfeit $892,500.
ECB publishes Financial Stability Review
The latest report from the European Central Bank has three headlines:
- Tighter financial conditions test resilience of households, firms, governments and property markets
- Financial markets are vulnerable to disorderly adjustments, given investment fund vulnerabilities, stretched valuations, high volatility and low liquidity
- Euro area banks robust to recent stress outside the euro area, but higher funding costs and lower asset quality may weigh on profitability
The accompanying press release notes that “Challenging macro-financial conditions are testing the resilience of firms, households, and governments, and rendering financial markets and investment funds more vulnerable to disorderly adjustments”.
Preventing financial crime in a rapidly changing environment: speech
In a speech at the European Anti-Financial Crime Summit, Seána Cunningham, Director of Enforcement and Anti-Money Laundering, Central Bank of Ireland, outlined three ways to enhance the effectiveness of preventing financial crime in the financial system.
Firstly the importance of shared goals and collective effort in combating financial crime. Cunningham stressed the need for cooperation at both the international and domestic levels, and highlighted the role of various stakeholders, including policymakers, regulators, law enforcement, financial intelligence agencies, and private sector firms, in preventing money laundering, terrorist financing, and financial crime. She also acknowledged the challenges posed by supervisory fragmentation and inconsistent application of rules, emphasizing the need for better coordination, high standards, and effective collective effort.
The second focus was raising awareness and being vigilant to prevent fraud and criminal activities targeting consumers. As well as acknowledging the rise in online and telephone scams and the importance of educating the public to recognize and report such crimes, Cunningham also emphasized the need for vigilance in monitoring financial market activities to prevent market abuse, such as insider trading. Collaboration, reporting, and information sharing were highlighted as crucial tools in fighting against market abuse.
Lastly, Cunningham addressed the changing risks in the rapidly evolving financial landscape. She stressed the importance of firms understanding the money laundering and terrorist financing risks specific to their business and developing effective risk management frameworks. She also mentioned the challenges associated with financial sanctions and the need for firms to comply with regulations.
Concluding, Cunningham expressed optimism about meeting the challenges through shared goals, collective effort, and the recognition of the societal importance of preventing financial crime. She highlighted the need for collaboration, raising awareness, and adapting to the changing risk environment. Despite the polarized world, the speaker believes in the mobilization of the anti-financial crime community to overcome these challenges.
EBA launches consultation on technical standards for supervisory colleges
The European Banking Authority (EBA) has initiated a public consultation on draft Regulatory Technical Standards (RTS) and draft Implementing Technical Standards (ITS) related to the functioning of supervisory colleges under the Capital Requirements Directive (CRD). These proposed technical standards aim to enhance the alignment of the Level 2 framework for supervisory colleges with Level 1 regulations, fostering more efficient and effective supervision of cross-border banking groups. The consultation period will remain open until August 30, 2023.
The updated RTS and ITS for colleges of supervisors serve two purposes. Firstly, they implement the requirements specified in the CRD V and CRR 2 (Capital Requirements Regulation). Secondly, they reflect observations derived from the EBA’s ongoing monitoring activities on the functioning of supervisory colleges.
Key updates included in the proposed standards encompass the following areas:
- Improved information exchange within the college, as well as with observers, during both normal and emergency situations.
- Effective identification of emerging risks in the event of adverse material impacts on the risk profile of the banking group or its entities.
- Appropriate utilization of the option for “entrustment of tasks and delegation of responsibility” to facilitate efficient and effective supervision of cross-border banking groups.
The EBA encourages stakeholders to provide their input and feedback on the proposed technical standards during the consultation period. The final versions of the RTS and ITS are expected to enhance the functioning of supervisory colleges and contribute to the sound supervision of the European banking sector.
The consultation runs until 30 August 2023.
A selected summary of key developments for regulated financial institutions
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