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Why are they being prosecuted? Those are not securities, or are they? "Wire fraud" implies that they defrauded someone by lying to their own advantage over a di

Why are they being prosecuted? Those are not securities, or are they? "Wire fraud" implies that they defrauded someone by lying to their own advantage over a digital channel. Insider trading is generally legal for non-securities. EDIT: I am not implying that they shouldn't, on a moral level. They should! I am asking about legal technicalities, and about the state of law around those issues.

MR4D 4y ago
I have this same question. Crypto has not been defined as an asset category yet (and the SEC has not declared it to be a “security” so far). FTA - “. . . wire fraud conspiracy and wire fraud in connection with a scheme to commit insider trading in cryptocurrency assets. . .” I’m presuming that it’s the fraud they are going after, and the “insider trading” aspect is verbal sugar. I can’t imagine that insider trading would ever apply to real estate or art, so not sure why it’s even mentioned here. IANAL, so perhaps someone wiser than me can add some clarity here?
- pirate787 4y ago
  From another angle, he defrauded Coinbase, through violating the terms of employment as part of the listing team.
  - H8crilA 4y ago
    Right! That may be the answer.
  - fallingknife 4y ago
    Wouldn't that be a civil matter between him and Coinbase?
    - JumpCrisscross 4y ago
      > Wouldn't that be a civil matter between him and Coinbase? It’s that, too. But fraud is a crime.
    - deleted 4y ago
      [deleted]
    - smsm42 4y ago
      Fraud is both civil and criminal matter. https://en.wikipedia.org/wiki/Fraud#Criminal_fraud https://en.wikipedia.org/wiki/Fraud#Criminal_fraud
- zamalek 4y ago
  Hopefully this forces the issue and we can get some clarity on cryptocurrency taxation.
wmf 4y ago
"Nikhil Wahi and Ramani allegedly purchased at least 25 crypto assets, at least nine of which were securities, and then typically sold them shortly after the announcements for a profit." https://www.sec.gov/news/press-release/2022-127 https://www.sec.gov/news/press-release/2022-127
- H8crilA 4y ago
  Yeah, it may be a way to officially call at least some of them securities: > "We are not concerned with labels, but rather the economic realities of an offering," said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. "In this case, those realities affirm that a number of the crypto assets at issue were securities, and, as alleged, the defendants engaged in typical insider trading ahead of their listing on Coinbase. Rest assured, we’ll continue to ensure a level playing field for investors, regardless of the label placed on the securities involved." Should this go to the courts which end up deciding that they are in fact securities - that will be a nice precedent.
  - vba616 4y ago
    I kind of see the point of those who think this is obnoxious and damaging to the rule of law, even if what Grewal says is perfectly true. Just because one part of the government thinks something is a security, even for logical reasons, doesn't mean every other part agrees. The SEC is not the supreme and only authority, which means you can't simply obey its whims. Why does it have to be fought out in court with no master plan? If X, Y, and Z are securities, then why can't the government label them as such and enforce that others do? Why can't rules and regulations be made in an orderly fashion so that people know what is legal without costly litigation? I mean, those are rhetorical questions; it seems like the reason is everybody is making it up as they go along and there's no leadership. It's like "move fast and break things" has become so standard that nobody bothers to say "wait, breaking things because you don't look before you leap is wasteful". It's just how we do things here.
potamic 4y ago
It's in the release, > U.S. Attorney Damian Williams said: “Today’s charges are a further reminder that Web3 is not a law-free zone. Just last month, I announced the first ever insider trading case involving NFTs, and today I announce the first ever insider trading case involving cryptocurrency markets. Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street. And the Southern District of New York will continue to be relentless in bringing fraudsters to justice, wherever we may find them.” > FBI Assistant Director Michael J. Driscoll said: “Although the allegations in this case relate to transactions made in a crypto exchange - rather than a more traditional financial market – they still constitute insider trading. As alleged, the defendants made illegal trades in at least 25 different crypto assets and realized ill-gotten gains totaling approximately $1.5 million. Today’s action should demonstrate the FBI’s commitment to protecting the integrity of all financial markets – both ‘old’ and ‘new.’” Why do you say insider trading is legal for non-securities?
- H8crilA 4y ago
  > Why do you say insider trading is legal for non-securities? What, exactly, prohibits you from doing that? Certainly not the Securities Act of 1933 or any SEC rule. Overall maybe this is a complicated way of officially calling them securities and cleaning this mess on a higher level. At least that's what the FBI implies. However, it is not up to the FBI to decide what is a security, but rather up to the courts of law. This will be interesting.
  - deleted 4y ago
    [deleted]
  - JumpCrisscross 4y ago
    > Certainly not the Securities Act of 1933 or any SEC rule U.S. insider trading restrictions are creatures of common law. The ‘33 Act makes no mention of it. The same antifraud/antitheft theories enable prosecution of a Coinbase insider using their position to trade with advantage.
    - 4y ago
anonu 4y ago
As Matt Levine would say - and will certainly write about tomorrow - Insider Trading is about theft. They stole valuable company information before it was publicly known to profit from it...
tyrfing 4y ago
Title 18 insider trading: https://www.yalelawjournal.org/note/title-18-insider-trading https://www.yalelawjournal.org/note/title-18-insider-trading It's prosecution for "insider trading" that doesn't rely on anything specific to insider trading. Focus on the insider part, not the trading - it's about embezzlement of confidential information.
yieldcrv 4y ago
Correct they are charged with Wire Fraud and Conspiracy to commit Wire fraud They are not charged with securities violations, despite roping in the Securities Exchange Commission, because the government is not confident that it can bring a securities violation. They are not charged with any statute under commodities regulations or consumer product fraud either. The government is using a new interpretation of wire fraud, because people really don't like that this action occurred and NFT's affected enough people. So the wire fraud is a stretch but is the most reliable catch-all charge they have, absent any guidance from Congress. I also think it is overly ambitious. DOJ did this a few months ago as well in another NFT case. In both cases they relied on the existence of a confidentiality agreement with the employer, to trigger the mapping of a financial action to a fraud statute.

MR4D 4y ago

I have this same question. Crypto has not been defined as an asset category yet (and the SEC has not declared it to be a “security” so far). FTA - “. . . wire fraud conspiracy and wire fraud in connection with a scheme to commit insider trading in cryptocurrency assets. . .” I’m presuming that it’s the fraud they are going after, and the “insider trading” aspect is verbal sugar. I can’t imagine that insider trading would ever apply to real estate or art, so not sure why it’s even mentioned here. IANAL, so perhaps someone wiser than me can add some clarity here?

pirate787 4y ago
From another angle, he defrauded Coinbase, through violating the terms of employment as part of the listing team.
- H8crilA 4y ago
  Right! That may be the answer.
- fallingknife 4y ago
  Wouldn't that be a civil matter between him and Coinbase?
  - JumpCrisscross 4y ago
    > Wouldn't that be a civil matter between him and Coinbase? It’s that, too. But fraud is a crime.
  - deleted 4y ago
    [deleted]
  - smsm42 4y ago
    Fraud is both civil and criminal matter. https://en.wikipedia.org/wiki/Fraud#Criminal_fraud https://en.wikipedia.org/wiki/Fraud#Criminal_fraud
zamalek 4y ago
Hopefully this forces the issue and we can get some clarity on cryptocurrency taxation.

wmf 4y ago

"Nikhil Wahi and Ramani allegedly purchased at least 25 crypto assets, at least nine of which were securities, and then typically sold them shortly after the announcements for a profit." https://www.sec.gov/news/press-release/2022-127 https://www.sec.gov/news/press-release/2022-127

H8crilA 4y ago
Yeah, it may be a way to officially call at least some of them securities: > "We are not concerned with labels, but rather the economic realities of an offering," said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. "In this case, those realities affirm that a number of the crypto assets at issue were securities, and, as alleged, the defendants engaged in typical insider trading ahead of their listing on Coinbase. Rest assured, we’ll continue to ensure a level playing field for investors, regardless of the label placed on the securities involved." Should this go to the courts which end up deciding that they are in fact securities - that will be a nice precedent.
- vba616 4y ago
  I kind of see the point of those who think this is obnoxious and damaging to the rule of law, even if what Grewal says is perfectly true. Just because one part of the government thinks something is a security, even for logical reasons, doesn't mean every other part agrees. The SEC is not the supreme and only authority, which means you can't simply obey its whims. Why does it have to be fought out in court with no master plan? If X, Y, and Z are securities, then why can't the government label them as such and enforce that others do? Why can't rules and regulations be made in an orderly fashion so that people know what is legal without costly litigation? I mean, those are rhetorical questions; it seems like the reason is everybody is making it up as they go along and there's no leadership. It's like "move fast and break things" has become so standard that nobody bothers to say "wait, breaking things because you don't look before you leap is wasteful". It's just how we do things here.

potamic 4y ago

It's in the release, > U.S. Attorney Damian Williams said: “Today’s charges are a further reminder that Web3 is not a law-free zone. Just last month, I announced the first ever insider trading case involving NFTs, and today I announce the first ever insider trading case involving cryptocurrency markets. Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street. And the Southern District of New York will continue to be relentless in bringing fraudsters to justice, wherever we may find them.” > FBI Assistant Director Michael J. Driscoll said: “Although the allegations in this case relate to transactions made in a crypto exchange - rather than a more traditional financial market – they still constitute insider trading. As alleged, the defendants made illegal trades in at least 25 different crypto assets and realized ill-gotten gains totaling approximately $1.5 million. Today’s action should demonstrate the FBI’s commitment to protecting the integrity of all financial markets – both ‘old’ and ‘new.’” Why do you say insider trading is legal for non-securities?

H8crilA 4y ago
> Why do you say insider trading is legal for non-securities? What, exactly, prohibits you from doing that? Certainly not the Securities Act of 1933 or any SEC rule. Overall maybe this is a complicated way of officially calling them securities and cleaning this mess on a higher level. At least that's what the FBI implies. However, it is not up to the FBI to decide what is a security, but rather up to the courts of law. This will be interesting.
- deleted 4y ago
  [deleted]
- JumpCrisscross 4y ago
  > Certainly not the Securities Act of 1933 or any SEC rule U.S. insider trading restrictions are creatures of common law. The ‘33 Act makes no mention of it. The same antifraud/antitheft theories enable prosecution of a Coinbase insider using their position to trade with advantage.
  - 4y ago

anonu 4y ago

As Matt Levine would say - and will certainly write about tomorrow - Insider Trading is about theft. They stole valuable company information before it was publicly known to profit from it...

tyrfing 4y ago

Title 18 insider trading: https://www.yalelawjournal.org/note/title-18-insider-trading https://www.yalelawjournal.org/note/title-18-insider-trading It's prosecution for "insider trading" that doesn't rely on anything specific to insider trading. Focus on the insider part, not the trading - it's about embezzlement of confidential information.

yieldcrv 4y ago

Correct they are charged with Wire Fraud and Conspiracy to commit Wire fraud They are not charged with securities violations, despite roping in the Securities Exchange Commission, because the government is not confident that it can bring a securities violation. They are not charged with any statute under commodities regulations or consumer product fraud either. The government is using a new interpretation of wire fraud, because people really don't like that this action occurred and NFT's affected enough people. So the wire fraud is a stretch but is the most reliable catch-all charge they have, absent any guidance from Congress. I also think it is overly ambitious. DOJ did this a few months ago as well in another NFT case. In both cases they relied on the existence of a confidentiality agreement with the employer, to trigger the mapping of a financial action to a fraud statute.