This is the second part of my column on insider trading measures involving crypto. In the previous part, I discussed the criminal charges against Nathaniel Chastain, the former product manager at the OpenSea NFT marketplace. I also discussed the SEC’s allegations against former Coinbase employee Ishan Wahi, his brother and his friend based on the “abuse” theory of insider trading.
Turns on… is a monthly opinion column from Marc Powers, who spent much of his 40-year legal career working on complex securities-related cases in the United States after a stint with the SEC. He is currently an adjunct professor at Florida International University College of Law, where he teaches “Blockchain & the Law.”
From that United States v. O’Hagan The Supreme Court case in 1997 has expressly recognized the doctrine of insider trading. Both before that date and since, the “misappropriation” of trade secrets or confidential information used in connection with stock trading has been an active area of SEC enforcement and criminal prosecution.
For example, a former writer for The Wall Street Journal in United States v. Winans; the magazine’s staff stands for Hudson News Securities and Exchange Commission v. Smath; printer at a company that printed tender documents in Chiarella v. United States; and more recently, financial professionals in United States v. Newman and Salman v. United States. On the same day the SEC charged Ishan Wahi and two of his associates, the U.S. Attorney for the Southern District of New York unsealed a concurrent criminal indictment charging those same three defendants with wire fraud and conspiracy to commit wire fraud.
Recipients who receive material, non-public or confidential information from a tipper are in violation of insider trading rules if they know the tipper breached a duty owed to others and received some form of personal benefit from the tip. The Supreme Court said in 2016 Salman case that the personal benefit need not be financial or financial. The benefit requirement is satisfied by giving this information as a gift to a relative or close friend.
Frankly, it’s time for the SEC and US Attorneys offices to focus on real crime and fraud. This is exactly what insider trading is: fraud. It is an unfair business advantage of someone who learns confidential information and trades on it for economic gain and profit. But this Wow The case raises the question of what exactly is insider trading. As I said before, insider trading involves trading in “securities”. Accordingly, to file its case, the SEC is arguing that at least nine of the tokens listed on Coinbase and traded in advance by the defendants fit within the “investment contract” analysis of the Howey test. But do they really?
The SEC says some of the tokens “purport” to be management tokens but are “securities.” That’s why it’s worth heeding this warning shot. For those token issuers taking comfort from lawyers who have ruled that their tokens are not securities because they are government tokens, beware – and perhaps get a second opinion from a qualified securities attorney.
Aside from the interesting aspects of this particular case, what does it mean for others, like Coinbase itself? Well, the SEC claims that certain tokens on the exchange are “securities.” If so, then Coinbase should be registered as a “securities exchange” under the Securities Exchange Act of 1934. Not surprisingly, a few days after the SEC filing, it was reported that Coinbase was under SEC investigation.
My view is that SEC Chairman Gary Gensler is using this case as a further “land grab” to take jurisdiction over digital assets – and crypto in particular – away from the Futures Trading Commission. I’ve said this before. Indeed, CFTC Commissioner Caroline D. Pham also sees through the SEC’s efforts.
The best in blockchain, every Tuesday
Subscribe to thoughtful polls and leisurely reading from the magazine.
The day the complaint was filed, she said published public statement, saying, “The SEC’s allegations could have far-reaching implications beyond this single case, underscoring the importance and urgency of regulators working together.” Key questions are best answered through a transparent process that encourages the public to shape appropriate policies. […] Regulatory clarity comes from being out in the open, not in the dark.”
Pham also said: “SEC v. Wahi is a striking example of ‘regulation by enforcement.’” Four days later, on July 25, CFTC Chairman Rostin Behnam spoke to the Brookings Institute and echoed the view that the CFTC was the natural and best regulator to oversee crypto.
What about those nine “issuers” of the nine tokens the SEC claims are securities? Well, they can also expect to be subject to independent investigations by SEC staff looking into registration violations. Every ICO or their offering is within the five-year statute of limitations for the SEC to bring enforcement action against them. Stay tuned.
The opinions expressed are those of the authors alone and do not necessarily reflect the opinions of Cointelegraph or Florida International University College of Law or its affiliates. This article is for general informational purposes and is not intended and should not be construed as legal or investment advice.
Mail Bonus – #Powering #Encrypted #Insider #Trading #Targeted #Finally #Part #Cointelegraph #Magazine