US district judge Loretta Preska in New York ruled that Nikhil Wahi had made trades based on confidential information from Coinbase, saying the crime was “not an isolated error in judgement”.
Prosecutors said Ishan Wahi, the former product manager, shared the information with his brother and their friend Sameer Ramani about new digital assets that Coinbase was planning to let users trade. Ishan Wahi has pleaded not guilty, and Ramani is at large.
Prosecutors said Wahi made nearly $900,000 of profit by illegally trading up-and-coming cryptocurencies ahead of 40 different Coinbase announcements. They recommended a 10- to 16-month sentence.
The sentencing came as US prosecutors and regulators ramp up their scrutiny of cryptocurrency companies and executives.
“Today’s sentence makes clear that the cryptocurrency markets are not lawless,” Damian Williams, the top federal prosecutor in Manhattan, said in a statement.
Last month, FTX founder Sam Bankman-Fried pleaded not guilty to eight counts of fraud and conspiracy over the collapse of his now-bankrupt exchange, a Coinbase rival.
The crypto sector is also struggling, after the values of bitcoin and other digital assets plunged last year as interest rates and worries of an economic downturn rose.
Coinbase said on Tuesday it would cut about 20 per cent of its workforce, or 950 employees, in its third round of layoffs since last year.
Wahi’s mother and about one dozen other family members and friends attended his sentencing. He told Preska he had traded in an effort to repay his parents for funding his US college education.
“I wanted to help my parents, but instead I put them through great suffering,” said Wahi, whose lawyer had urged Preska not to impose a prison sentence. “I’m very sorry for what I did.”
Earlier this month, New York’s Department of Financial Services announced a $100 million settlement with Coinbase after state officials claim to have discovered significant failures in the platform’s systems for spotting potential criminal activity.
Additional reporting from agencies.