Sec. & Exch. Comm'n v. Wahi

1

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. ISHAN WAHI et al, Defendants.

No. 2:22-cv-01009-TL

United States District Court, W.D. Washington, Seattle

March 1, 2024

ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR DEFAULT JUDGMENT AGAINST DEFENDANT SAMEER RAMANI

Tana Lin, United States District Judge

This matter comes before the Court on Plaintiff Securities and Exchange Commission's (“the SEC”) Motion for Default Judgment against Defendant Sameer Ramani. Dkt. No 118. Having reviewed the Motion and the relevant record, the Court GRANTS IN PART and DENIES IN PART Plaintiff's Motion.

I. Background

A. Relevant Factual Allegations

This case originally involved three individuals accused of securities violations for insider trading of certain crypto asset securities: (1) Defendant Ishan Wahi (“Ishan”), a former manager in Coinbase Global Inc.'s (“Coinbase”) Asset Listings Group; (2) his brother, Defendant Nikhil Wahi (“Nikhil”); and (3) a close friend, Defendant Sameer Ramani (“Ramani”).^[1]Ishan was entrusted with first-hand knowledge of tokens Coinbase planned to list on its cryptocurrency platform, and when those listings would occur. Dkt. No. 27 ¶¶ 4, 30. Ishan knew access to listing information was restricted, even within Coinbase, and acknowledged his duty to keep listings information confidential per Coinbase's policies regarding material nonpublic information. Id. ¶¶ 4, 28-29, 31-32. Ishan provided Nikhil and Ramani with material nonpublic information ahead of dozens of listing announcements in 2021 and 2022, including the timing and content of the listings. Id. ¶¶ 6, 37-96. Ramani then used the confidential information to earn substantial trading profits. See, e.g., Id. ¶¶ 53-58; see also Dkt. No. 118-1 (“Brennan Decl.”) at ¶¶ 4-13. Allegedly, Ramani repeatedly engaged in such misconduct with respect to a number of tokens. Dkt. No. 27 ¶¶ 42-47, 53-58, 60-78, 88-93. As a result, Ramani realized $817,602 in illicit proceeds from illegally trading in the tokens as described by the SEC. Id. ¶¶ 46, 58, 66, 73, 78, 91; Dkt. No. 118-1 at ¶¶ 12-13. Ramani also took steps to conceal the illegal trading by using multiple accounts, crypto asset wallets, and addresses across different trading platforms. Dkt. No. 27 ¶¶ 41, 93-96.

Ishan and Ramani are friends. Ramani has known Ishan since at least 2013; they attended the University of Texas together. Id. ¶ 35. They followed each other on social media and communicated by phone, text, and WhatsApp in 2021 and 2022. Id. ¶ 35-36. In May 2022, Ishan alerted Ramani that Coinbase's legal personnel had begun investigating Ishan in connection with Coinbase's asset listing process. Id. ¶ 97. Ramani responded, “Bro I'm on standby. Let me know if you need anything.” Id. Ishan also repeatedly communicated with Ramani on May 16, 2022, the day Ishan attempted to flee the country. Id. ¶ 98.

According to the SEC, the tokens in which Ramani traded were investment contracts and, therefore, securities, because each involved the investment of money, in a common enterprise, with a reasonable expectation of profit derived from the efforts of others. Dkt. No. 27 ¶ 100. Investors paid money or other consideration for the tokens, which were then issued and distributed to the investors' blockchain addresses. Id. ¶¶ 101, 109, 111, 124-25, 135-37, 149-50, 159-62, 174, 182-83, 195-97, 210-11. The fortunes of investors and those offering the tokens were linked-demonstrating a common enterprise-because the management teams of each issuer retained a substantial number of tokens, specifically to incentivize and align interests with investors. Id. ¶¶ 110, 115-16, 125, 126, 135, 150, 154, 159, 163-64, 175, 195, 211, 212.

The issuers solicited investors by focusing on the tokens' potential investment profits. Id. ¶ 102. The tokens were broadly promoted on social media posts, blogs, articles, white papers, websites, and interviews with claims: (1) that the tokens could appreciate dramatically in value; (2) that token holders could have other opportunities to earn fees and other benefits; and (3) that the issuers were taking steps to increase the tokens' value, including limiting the supply of tokens, facilitating trading on secondary market trading platforms, and retaining substantial numbers of tokens to incentivize their management. Id. ¶¶ 110, 111, 114-19, 125-27, 135, 13941, 150-52, 154, 159, 162-67, 175-78, 184-86, 190, 195, 201-02, 211-14. Multiple issuers posted their tokens' daily prices on their websites. Id. ¶¶ 177, 201, 214. The issuers explained to potential investors that secondary market liquidity was both a means for investors to earn returns and a way for broader market participants to participate in the issuers' growth. Id. ¶¶ 103-105, 119, 127, 151-52, 178, 202. Issuers also stressed the importance of pairing supply restrictions with broader demand. E.g., Id. ¶¶ 164, 177. Finally, each issuer repeatedly emphasized that identified teams of founders and employees were exclusively responsible for the development and operation of the ecosystem linked to each token, as well as the placement of their token on secondary market trading platforms. Id. ¶¶ 121, 128-30, 142-44, 153-54, 168-70, 175, 179, 188, 204-06, 215-16. Issuers stated that management would continue to retain a substantial number of tokens, financially incentivizing management to undertake managerial and entrepreneurial efforts to increase the value of the tokens. Id. ¶¶ 110, 116, 125, 135, 150, 154, 159, 175, 195, 211, 212.

B. Procedural History

The SEC filed its initial Complaint (Dkt. No. 1) on July 21, 2022, and its First Amended Complaint (“FAC,” Dkt. No. 27) on December 22, 2022. In a parallel criminal proceeding, Defendants Nikhil and Ishan pled guilty to violating 18 U.S.C. § 1349 on January 10 and February 7, 2023, respectively. See United States v. Ishan Wahi, No. CR22-392, Dkt. Nos. 68, 81 (S.D.N.Y.).^[2]The SEC settled its civil claims against Ishan and Nikhil, and the Court entered final judgment as to Nikhil and Ishan on June 1, 2023. Dkt. Nos. 109-110.

On December 23, 2022, the SEC filed a motion for alternative service on Ramani. Dkt. No. 28. The Court granted the SEC's motion on May 23, 2023, directing the SEC to serve Ramani and his criminal counsel by email and Ramani directly via WhatsApp. Dkt. No. 106 at 7. The SEC complied, effecting service through email and WhatsApp on both Ramani and his criminal counsel. Although it appears that Ramani's WhatsApp is no longer active, the SEC received no indication that email service did not reach Ramani or his counsel. Dkt. No. 112.

Despite being served pursuant to the Court's Order, Ramani has neither entered an appearance in this matter nor responded to the FAC. Accordingly, on October 19, 2023, the SEC sought entry of default (Dkt. No. 113), which the Clerk of Court entered on October 26, 2023 (Dkt. No. 114). The SEC now moves for a final default judgment against Ramani. Dkt. No. 118.

II. Legal Standard

A court's decision to enter a default judgment is discretionary. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). Default judgment is “ordinarily disfavored,” because courts prefer to decide “cases on their merits whenever reasonably possible.” Eitel v. McCool, 782 F.2d 1470, 1472 (9th Cir. 1986). When considering whether to exercise discretion in entering default judgments, courts consider the following factors:

(1) the possibility of prejudice to the plaintiff, (2) the merits of a plaintiff's substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure.

Id. at 1471-72. Courts reviewing motions for default judgment must accept the allegations in the complaint as true, except facts related to the amount of damages. Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977).

III. Discussion

As an initial matter, the Court finds that it has jurisdiction over this action pursuant to 15 U.S.C. §§ 78u(d), 78u(e), 78u-1, 78aa, and 28 U.S.C. § 1331. The Court also finds that venue is proper under 15 U.S.C. § 78aa(a) because purchases and sales of securities and acts, practices, transactions, and courses of business constituting the violations alleged in the FAC occurred within the Western District of Washington, and were achieved, directly or indirectly, by making use of the means, instruments, or instrumentalities of transportation or communication in interstate commerce.

A. Eitel Factors

Considering the Eitel factors, the Court finds that entry of default judgment is proper.

1. First Factor: Prejudice to Plaintiff

Courts have repeatedly found in cases such as this, where a defendant has refused to take part in litigation initiated by the SEC, that the first Eitel factor “weighs in favor of granting default judgment because the Commission has no recourse otherwise.” SEC v. Valentine, No. C20-4358, 2021 WL 148361, at *2 (N.D. Cal. Jan. 15, 2021); see also, e.g., SEC v. S-Ray Inc., No. C22-5150, 2023 WL 121435, at *1 (W.D. Wash. Jan. 6, 2023). Therefore, this first factor favors default judgment.

2. Second and Third Factors: Substantive Merits of Claim and Sufficiency of Complaint

“Courts often consider the second and third Eitel factors together.” SEC v. C3 Int'l, Inc., No C21-1586, 2022 WL 16814859, at *4 (C.D. Cal. Nov. 7, 2022). These factors “assess the substantive merits of the movant's claims and the sufficiency of its pleadings, which require that a movant state a claim on which it may recover.” Id. The SEC's claims against Ramani arise from the Securities Exchange Act of 1934 (“Exchange Act”). Dkt....