Federal Court Rules Crypto Exchange Trading Constitutes Securities Activity in Ishan Wahi Insider Trading Case

A U.S. federal court has ruled that when investors trade cryptocurrencies on secondary markets—such as major exchanges—those transactions qualify as securities transactions. The landmark determination emerged in a default judgment case involving Sameer Ramani, one of three defendants in a high-profile insider trading investigation connected to Coinbase. This ruling carries significant implications for how regulators like the SEC view digital asset trading and whether crypto exchanges must operate under securities law frameworks.

The case traces back to the insider trading scheme at Coinbase involving former product manager Ishan Wahi, his brother Nikhil Wahi, and their associate Sameer Ramani. In March 2024, the court issued its default judgment against Ramani after he failed to respond to legal proceedings—and court filings indicate that Ramani appears to have fled the country to evade prosecution.

The Court’s Securities Classification Framework

The court’s reasoning relied on the Howey test, the foundational legal standard for determining what constitutes an investment contract under U.S. securities law. The judgment stated that regardless of where crypto tokens change hands—whether through direct offerings or secondary market trades—the analysis remains consistent if issuers continue making claims about token profitability.

“The court’s analysis remains the same even to the extent Ramani traded tokens on the secondary market,” the ruling emphasized. The court concluded that “each issuer continued to make representations regarding the profitability of their tokens even as the tokens were traded on secondary markets. Thus, under Howey, all of the crypto assets that Ramani purchased and traded were investment contracts.”

This determination directly addresses the Ishan Wahi case because it establishes that trading through Coinbase’s platform doesn’t shield transactions from securities regulation—a critical point given that the original Ishan Wahi investigation centered on trading activity through the exchange.

Financial Penalties and the Ramani Judgment

The court imposed substantial penalties on Ramani. Beyond prohibiting future violations, the judgment included a civil penalty equal to twice his calculated profits—totaling $1,635,204—and disgorgement (forfeiture) of identified proceeds amounting to $817,602. However, the court rejected the SEC’s request for prejudgment interest, providing some limited relief within an otherwise unfavorable outcome for the defendant.

How This Ruling Affects the Broader Ishan Wahi Settlement

Earlier in May 2023, the SEC had settled charges with Ishan Wahi and his brother Nikhil Wahi in what the agency described as the first-ever insider trading case involving cryptocurrency markets. That settlement happened before this more expansive court ruling on securities classification. The Ramani judgment now provides judicial backing for the enforcement position the SEC took in the Ishan Wahi case, essentially validating that trading cryptocurrencies on exchanges like Coinbase falls squarely within securities law.

Industry Pushback and Regulatory Conflict

The ruling proves particularly significant because Coinbase and much of the cryptocurrency industry have long contested the SEC’s expansive interpretation of what constitutes a security. SEC Chair Gary Gensler has consistently argued that the vast majority of cryptocurrencies meet the Howey test definition and therefore constitute securities requiring regulatory registration. Coinbase has maintained that many tokens do not qualify as securities, and therefore would not fall under SEC jurisdiction.

This judicial decision tilts the balance toward Gensler’s interpretation, though the industry maintains its disagreement with this characterization.

Conflicting Precedents in the Courts

The cryptocurrency industry might have taken some comfort from earlier judicial decisions that seemed to limit securities classification. In July 2023, Federal District Judge Analisa Torres ruled in the Ripple case that while the company violated securities laws by selling XRP directly to institutional investors, it had not done so through programmatic retail sales to exchanges. This suggested a more nuanced approach to classification based on sales channels.

However, Judge Jed Rakoff disagreed with Torres’s reasoning in the Terraform Labs case in December 2023, ruling that both LUNA and MIR tokens constituted unregistered securities—a position more aligned with the broader classification framework now articulated in the Ramani judgment. These conflicting interpretations highlight ongoing judicial disagreement about where the line should be drawn.

Related Enforcement: The Kalshi Prediction Market Case

The regulatory focus on insider trading extended beyond just Coinbase insiders. The prediction market platform Kalshi recently accused two users of insider trading, including an employee of content creator MrBeast who allegedly made trades based on unreleased show content. Kalshi suspended and fined both users, while Beast Industries confirmed it was investigating the matter with the employee.

The Commodity Futures Trading Commission issued an advisory noting Kalshi’s action and flagged these cases as potential law violations. CFTC leadership characterized platforms like Kalshi as the “first line of defense” against insider trading activity, underscoring growing regulatory attention to market manipulation across trading venues.

The Broader Significance

The Ramani default judgment and the Ishan Wahi insider trading investigation demonstrate how aggressively U.S. regulators are pursuing both the classification question and actual market abuse. As courts continue issuing rulings on whether crypto trading constitutes securities activity, exchanges face mounting pressure to comply with SEC registration requirements—a major structural shift from how many platforms currently operate. The accumulating case law suggests that courts increasingly view secondary market crypto trading through a securities regulation lens, which will shape compliance obligations for exchanges like Coinbase for years to come.