A former Coinbase (COIN  ) employee was charged with insider trading of cryptocurrencies by the Department of Justice (DOJ). Ishan Wahi, Nikhil Wahi, and Sameer Ramani were charged with conspiracy and wire fraud which marks the first insider trading case involving cryptocurrencies.

This is how the scheme worked according to the DOJ filing: Ishan Wahi, a former product manager at Coinbase, would tip off his brother, Nikhil Wahi, and a friend, Sameer Ramani, about coins that were going to be listed on the Coinbase exchange.

Obviously, the listing of a coin would lead to an automatic spike in prices especially in coins with less liquidity as it would be available to millions of Coinbase's users. Both Ishan Wahi and Nikhil Wahi have been arranged, while the third defendant, Sammer Ramani, is at large. It's estimated that the group was able to accumulate about $1.5 million in gains through the scheme.

According to US Attorney Damian Williams, the charges are a reminder that even Web3 denizens have to follow the rule of law. Yet, this is only one incident that is quite egregious, compared to the thousands of incidents of fraud, scams, or insider trading that are less easier to track.

Interestingly, there had been chatter on Twitter (TWTR  ) for months about various wallets that were buying certain coins just before they were listed on Coinbase. And, the company was involved in the investigation, once they also determined Wahi's involvement.

In the longer-term, such regulation is necessary for the industry to mature and become fully trusted by users. It's ironic that crypto's original selling point was that it would get away from the limitations and pitfalls of the traditional financial system, but many insiders are now calling for enhanced regulation to prevent the scams and loss of deposit that will truly shred trust in the industry.

While Coinbase cooperated with the DOJ, it continues to war with the U.S. Securities and Exchange Commission (SEC). In a complaint, the SEC said that 9 of the 25 coins that were used for 'insider trading' were securities. Listing securities comes with a higher regulatory burden that doesn't apply to cryptocurrencies. It would also bring them under the SEC's jurisdiction. So, it makes sense that the SEC wants to augment its regulatory apparatus by including cryptocurrencies and that Coinbase would oppose these efforts.