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Note that they were charged for wire fraud and wire fraud conspiracy. So not for actual Section 10(b) violations, aka insider trading.

by est31 4y ago

stingraycharles 4y ago
This may sound like a dumb question, but as a foreigner, I have no idea what wire fraud actually means, but I hear it pretty often. The explanation I found “Mail fraud and wire fraud are terms used to describe the use of a physical or electronic mail system to defraud another” doesn’t really help me further, other than it just being “fraud”. What would be the difference between insider trading and fraud, in this specific case? Would it mean that someone basically enriched themselves with Coinbase without it being through trades (just to name an example, skimming rounding inaccuracies in your favor) ?
- mjburgess 4y ago
  The federal government effectively needs "legal fictions" in order to prosecute at the state level. The way it prosecutes fraud here is by observing that it's over electronic wires which cross state lines.
- noughtme 4y ago
  US authorities often don't have enough evidence to prosecute for the underlying crime, or it may have low penalties, but they often have the evidence to prosecute for mail fraud or wire fraud(basically any means of electronic communication). Mail/wire fraud are federal offences, so this also involves federal prosecutors and agencies with more resources, surveillance abilities, and higher penalties.
- projektfu 4y ago
  Fraud can be a state or federal crime, "wire fraud" usually means it is at the federal level because of its use of interstate electronic communications. Mail fraud is similar. If you send someone a letter, you're using the US Mail system and thus are involving the federal level making it a federal crime. If you exclusively use a private interstate letter carrier (FedEx, for example), you are still committing mail fraud because the law was amended to cover that.
- rmbyrro 4y ago
  In layman's terms, wire fraud is committed when one uses a financial transfer in connection with or to defraud others. Nowadays, it's very hard to commit financial fraud without also committing wire fraude.
- NineStarPoint 4y ago
  “Doesn’t really help me further, other than it just being ‘fraud’.” Shows a correct understanding of what wire fraud is. It’s an incredibly broad category, meaning basically any fraud that happens at distance that doesn’t involve a physics means of communication like mail. In this case, because the trades were made via digital communications, it’s wire fraud. The reason you hear “wire fraud” so much is, as you might be able to guess, the vast majority of fraud these days takes place over the web. In this case the indictment is “wire fraud in connection with a scheme to commit insider trading”. So it is both wire fraud and securities fraud. Generally speaking, the relevant information will be whatever specific fraud they are accused of committing over the wire, and not that it is the incredibly generic term wire fraud.
- deleted 4y ago
  [deleted]
- tylersmith 4y ago
  Mail/wire fraud is simply fraud that was conducted using mail or other communications platforms. Insider trading is specifically about rules around trading securities. In this case the allegation has nothing to do with securities trading, it's about an employee defrauding their employer by misappropriating privileged information.
- googlryas 4y ago
  Insider trading is (roughly) specifically about using non-public corporate information to make money. Fraud is generally about deceiving people. Wire fraud is specifically about deceiving people using telecommunications devices - imagine when telephones first became popular - a fraudster before had to go knock on every door, expose his face to the town, and possibly be driven out if people found out what he was doing. With telephones, the fraudster could sit in a loft in NYC and call thousands of people all over the country with their fraud, and there would be very little anyone could do to stop them.
- Spooky23 4y ago
  The problem is that separation of powers make most frauds a state matter. If you were ripped off in NY, a local county district attorney would prosecute you. The problem with that is state laws and capabilities are inconsistent. Even in New York, where there is a well established body of law for things like financial frauds, the local prosecutors make lack capability or venue. If you live in Lake Placid, NY and are scammed, it’s unlikely that the Essex County DA (probably 4 attorneys) has the capability to prosecute a complex financial crime. If you live in Manhattan, different story - that DA has thousands of attorneys and expertise. The Federal government side-steps turf issues and inequity by using more “umbrella” laws that are easy to approve. If you commit a fraud that has a connection to the mail, “Mail Fraud”. If you use a phone, “Wire Fraud”. If you take money that isn’t yours from an FDIC insured bank, that’s a Federal crime. If you lie to a Federal agent, that’s a crime.
  - stingraycharles 4y ago
    Oh, this makes sense: since mail and phone spans the whole nation instead of states, it becomes a federal matter?
    - Spooky23 4y ago
      You got it. A lot of newer or expansive federal powers are based on interpretations of the power to regulate interstate commerce. The Senate is by design very conservative (or regressive depending on POV). Stuff gets done by squinting at the law and finding new ways to get shut done.
- treis 4y ago
  Note that the fraud here is against Coinbase. Namely, that the defendant who worked there fraudulently agreed to abide by non-disclosure and trading policies. The others are wrapped up in conspiracy charges. I think this is a pretty novel charge and IMHO isn't going to stick. They're going to have to prove an intent to deceive and deceive specifically to "insider trade". Agreeing not to disclose and then disclosing isn't in itself fraud. You have to plan to disclose prior to that agreement to make it fraud.
- kepler1 4y ago
  Also conducting fraud, if it ever touches a piece of US mail, opens up the channel to be investigated and prosecuted via the US Postal Inspection service. Which I have heard, they are no joke.
nus07 4y ago
Curious about what would have happened had the protagonist managed to board the flight to India and get there ? Would the SEC and Coinbase been able to extradite or do anything then ?
- housedrafta 4y ago
- Agamus 4y ago
  Asking for a friend? Or did you mean antagonist?
  - treis 4y ago
    The protagonist is the main/leading character in a story. It's not a moral judgement except in the sense that stories usually make the protagonist the good guy.
    - TecoAndJix 4y ago
      It is about perspective. The government & Coinbase are antagonists to the POV of the fraudster and the fraudster is an antagonist to the POV of the government and Coinbase. Since the release is from the government, I think that makes him the antagonist?
kkielhofner 4y ago
I have a friend in federal law enforcement that deals with crypto and financial crimes. He explains it like this: "First, I need to get a 65 year old Federal prosecutor to understand what this case is about. Then, they need to be able to potentially argue the case in court and to a jury that almost always has no idea what any of this means." He goes on to say that wire fraud is essentially a universal catch-all charge that distills the crux/burden of the case to two facts: 1) They committed fraud. 2) They touched a computer while doing it. These two points are much easier to argue, prove, and most importantly get a jury to understand (and convict on). Even though most federal prosecutions result in a plea deal of some sort the simplicity of arguing and proving wire fraud results in a much higher rate of success for a favorable plea deal and/or the threat of going to trial with a crime that's so easy to prove.
rmbyrro 4y ago
> each of which [wire fraud and wire fraud conspiracy] carries a maximum sentence of 20 years. So they're looking at maximum 40 years. One of them is charged with two counts on each, so 80 years max. It's not a light deal...
mellavora 4y ago
I think Section 10(b) insider trading only applies to trading company-issued securities based on inside knowledge of events related to the company. You can't "insider trade" FX, for example. Likewise, you cannot "insider trade" crypto.
deleted 4y ago
[deleted]
perihelions 4y ago
10b-5 is an SEC regulation, not a criminal statute. Administrative agencies don't have the power to define or prosecute crimes. It's fair to characterize these criminal charges as "insider trading" (I assume; the DoJ press release describes them using that phrase).
bulbosaur123 4y ago
Where is the fraud? They can't charge with insider trading, because insider trading does not apply to currencies or cryptocurrencies.
- romellem 4y ago
  According to the [indictment][1], they violated [18 USC § 1343][2], when they: participated in a scheme to deprive Coinbase of its exclusive use of confidential business information related to Coinbase's plans to list certain crypto assets on its exchanges [1]: https://www.justice.gov/usao-sdny/press-release/file/1521186/download https://www.justice.gov/usao-sdny/press-release/file/1521186... [2]: https://www.law.cornell.edu/uscode/text/18/1343 https://www.law.cornell.edu/uscode/text/18/1343

Note that they were charged for wire fraud and wire fraud conspiracy. So not for actual Section 10(b) violations, aka insider trading.

by est31 4y ago

Note that they were charged for wire fraud and wire fraud conspiracy. So not for actual Section 10(b) violations, aka insider trading.

stingraycharles 4y ago

This may sound like a dumb question, but as a foreigner, I have no idea what wire fraud actually means, but I hear it pretty often. The explanation I found “Mail fraud and wire fraud are terms used to describe the use of a physical or electronic mail system to defraud another” doesn’t really help me further, other than it just being “fraud”. What would be the difference between insider trading and fraud, in this specific case? Would it mean that someone basically enriched themselves with Coinbase without it being through trades (just to name an example, skimming rounding inaccuracies in your favor) ?

mjburgess 4y ago
The federal government effectively needs "legal fictions" in order to prosecute at the state level. The way it prosecutes fraud here is by observing that it's over electronic wires which cross state lines.
noughtme 4y ago
US authorities often don't have enough evidence to prosecute for the underlying crime, or it may have low penalties, but they often have the evidence to prosecute for mail fraud or wire fraud(basically any means of electronic communication). Mail/wire fraud are federal offences, so this also involves federal prosecutors and agencies with more resources, surveillance abilities, and higher penalties.
projektfu 4y ago
Fraud can be a state or federal crime, "wire fraud" usually means it is at the federal level because of its use of interstate electronic communications. Mail fraud is similar. If you send someone a letter, you're using the US Mail system and thus are involving the federal level making it a federal crime. If you exclusively use a private interstate letter carrier (FedEx, for example), you are still committing mail fraud because the law was amended to cover that.
rmbyrro 4y ago
In layman's terms, wire fraud is committed when one uses a financial transfer in connection with or to defraud others. Nowadays, it's very hard to commit financial fraud without also committing wire fraude.
NineStarPoint 4y ago
“Doesn’t really help me further, other than it just being ‘fraud’.” Shows a correct understanding of what wire fraud is. It’s an incredibly broad category, meaning basically any fraud that happens at distance that doesn’t involve a physics means of communication like mail. In this case, because the trades were made via digital communications, it’s wire fraud. The reason you hear “wire fraud” so much is, as you might be able to guess, the vast majority of fraud these days takes place over the web. In this case the indictment is “wire fraud in connection with a scheme to commit insider trading”. So it is both wire fraud and securities fraud. Generally speaking, the relevant information will be whatever specific fraud they are accused of committing over the wire, and not that it is the incredibly generic term wire fraud.
deleted 4y ago
[deleted]
tylersmith 4y ago
Mail/wire fraud is simply fraud that was conducted using mail or other communications platforms. Insider trading is specifically about rules around trading securities. In this case the allegation has nothing to do with securities trading, it's about an employee defrauding their employer by misappropriating privileged information.
googlryas 4y ago
Insider trading is (roughly) specifically about using non-public corporate information to make money. Fraud is generally about deceiving people. Wire fraud is specifically about deceiving people using telecommunications devices - imagine when telephones first became popular - a fraudster before had to go knock on every door, expose his face to the town, and possibly be driven out if people found out what he was doing. With telephones, the fraudster could sit in a loft in NYC and call thousands of people all over the country with their fraud, and there would be very little anyone could do to stop them.
Spooky23 4y ago
The problem is that separation of powers make most frauds a state matter. If you were ripped off in NY, a local county district attorney would prosecute you. The problem with that is state laws and capabilities are inconsistent. Even in New York, where there is a well established body of law for things like financial frauds, the local prosecutors make lack capability or venue. If you live in Lake Placid, NY and are scammed, it’s unlikely that the Essex County DA (probably 4 attorneys) has the capability to prosecute a complex financial crime. If you live in Manhattan, different story - that DA has thousands of attorneys and expertise. The Federal government side-steps turf issues and inequity by using more “umbrella” laws that are easy to approve. If you commit a fraud that has a connection to the mail, “Mail Fraud”. If you use a phone, “Wire Fraud”. If you take money that isn’t yours from an FDIC insured bank, that’s a Federal crime. If you lie to a Federal agent, that’s a crime.
- stingraycharles 4y ago
  Oh, this makes sense: since mail and phone spans the whole nation instead of states, it becomes a federal matter?
  - Spooky23 4y ago
    You got it. A lot of newer or expansive federal powers are based on interpretations of the power to regulate interstate commerce. The Senate is by design very conservative (or regressive depending on POV). Stuff gets done by squinting at the law and finding new ways to get shut done.
treis 4y ago
Note that the fraud here is against Coinbase. Namely, that the defendant who worked there fraudulently agreed to abide by non-disclosure and trading policies. The others are wrapped up in conspiracy charges. I think this is a pretty novel charge and IMHO isn't going to stick. They're going to have to prove an intent to deceive and deceive specifically to "insider trade". Agreeing not to disclose and then disclosing isn't in itself fraud. You have to plan to disclose prior to that agreement to make it fraud.
kepler1 4y ago
Also conducting fraud, if it ever touches a piece of US mail, opens up the channel to be investigated and prosecuted via the US Postal Inspection service. Which I have heard, they are no joke.

nus07 4y ago

Curious about what would have happened had the protagonist managed to board the flight to India and get there ? Would the SEC and Coinbase been able to extradite or do anything then ?

housedrafta 4y ago
Agamus 4y ago
Asking for a friend? Or did you mean antagonist?
- treis 4y ago
  The protagonist is the main/leading character in a story. It's not a moral judgement except in the sense that stories usually make the protagonist the good guy.
  - TecoAndJix 4y ago
    It is about perspective. The government & Coinbase are antagonists to the POV of the fraudster and the fraudster is an antagonist to the POV of the government and Coinbase. Since the release is from the government, I think that makes him the antagonist?

kkielhofner 4y ago

I have a friend in federal law enforcement that deals with crypto and financial crimes. He explains it like this: "First, I need to get a 65 year old Federal prosecutor to understand what this case is about. Then, they need to be able to potentially argue the case in court and to a jury that almost always has no idea what any of this means." He goes on to say that wire fraud is essentially a universal catch-all charge that distills the crux/burden of the case to two facts: 1) They committed fraud. 2) They touched a computer while doing it. These two points are much easier to argue, prove, and most importantly get a jury to understand (and convict on). Even though most federal prosecutions result in a plea deal of some sort the simplicity of arguing and proving wire fraud results in a much higher rate of success for a favorable plea deal and/or the threat of going to trial with a crime that's so easy to prove.

rmbyrro 4y ago

> each of which [wire fraud and wire fraud conspiracy] carries a maximum sentence of 20 years. So they're looking at maximum 40 years. One of them is charged with two counts on each, so 80 years max. It's not a light deal...

mellavora 4y ago

I think Section 10(b) insider trading only applies to trading company-issued securities based on inside knowledge of events related to the company. You can't "insider trade" FX, for example. Likewise, you cannot "insider trade" crypto.

deleted 4y ago

[deleted]

perihelions 4y ago

10b-5 is an SEC regulation, not a criminal statute. Administrative agencies don't have the power to define or prosecute crimes. It's fair to characterize these criminal charges as "insider trading" (I assume; the DoJ press release describes them using that phrase).

bulbosaur123 4y ago

Where is the fraud? They can't charge with insider trading, because insider trading does not apply to currencies or cryptocurrencies.

romellem 4y ago
According to the [indictment][1], they violated [18 USC § 1343][2], when they: participated in a scheme to deprive Coinbase of its exclusive use of confidential business information related to Coinbase's plans to list certain crypto assets on its exchanges [1]: https://www.justice.gov/usao-sdny/press-release/file/1521186/download https://www.justice.gov/usao-sdny/press-release/file/1521186... [2]: https://www.law.cornell.edu/uscode/text/18/1343 https://www.law.cornell.edu/uscode/text/18/1343