Cryptoassets and insider trading – United States imposes 10-month sentence

13 Jan 2023, 57 mins ago

It has been reported that a United States (“U.S.”) Court has sentenced a former Coinbase product manager to 10 months in prison. 

First sentence imposed in first cryptoasset insider trading case

We previously wrote a blog on how the U.S. had charged an individual with offences involving insider trading regarding a cryptoasset, specifically concerning the cryptocurrency markets. This case was described as the first ever insider trading case involving cryptoassets traded on cryptocurrency markets. This is now the first sentence imposed in relation to a case involving cryptoassets traded on cryptocurrency markets.

This latest development shows that the U.S. are determined to hold to account those who are alleged to have committed crimes involving cryptoassets.

Given the latest turbulence and events in the cryptoasset space it is almost certain that, as we head into 2023, we will see U.S. regulating agencies and prosecuting authorities (and indeed those in other countries) bring more charges against those alleged to have been involved in crooked cryptoasset schemes.

Insider dealing and NFTs

On 01 June 2022, we also wrote a blog about how it was reported that the US Department of Justice (“DoJ”) had charged a former Non-Fungible Token (“NFT”) marketplace employee with insider trading. 

Indeed, this was the first time that insider trading charges had been brought in relation to trading in digital assets (specifically NFTs).

New technologies and old criminal schemes

As we discussed, this is not the first time that criminal charges had been made against individuals alleged to have used new technologies to engage in old criminal schemes.   Charges related to fraud and money laundering have previously been brought against individuals allegedly involved in crooked cryptoasset schemes. 

Indeed, Gherson Solicitors’ criminal litigation, regulation and investigatory team have previously written about new technology being used for old criminal schemes in an article for Finextra’s Tech and Crime Series: Cryptoassets and Financial Crime

The article focused on how new technologies (specifically digital assets) would enable criminals to commit old offences of fraud and money laundering, and looked at an allegedly fraudulent cryptocurrency scheme. The article then examined how cryptoassets could enable new ways to carry out old tricks, and whether regulatory agencies and prosecuting authorities are able to use old legal tricks to catch up. The article concluded that although these new technologies could prove to be a headache, agencies and authorities have used tried-and-tested methods, underpinned by a bit of common sense and understanding of how these new technologies work, to investigate and prosecute effectively, and then pondered if we were about to see new cases. 

New cases – NFTs and insider trading

It was always inevitable that as cryptoassets move into the era of the NFT, it was only a matter of time before an allegation was made against an individual in regard to using this latest manifestation of the technology to engage in an old criminal scheme.   

In a 01 June 2022 release, the DoJ stated that “NFTs might be new, but this type of criminal scheme is not.  ..[…].. Today’s charges demonstrate the commitment of this Office to stamping out insider trading – whether it occurs on the stock market of the blockchain.”  Further, that “as alleged, Chastain launched an age-old scheme to commit insider trading by using his knowledge of confidential information to purchase dozens of NFTs in advance of them being featured on OpenSeas’s homepage.

As we have previously discussed, this case will be interesting to follow, and what can be said with certainty is that regulating agencies and prosecuting authorities will be watching these new technologies with a keen eye and will be investigating any other situations where it is alleged that a criminal scheme is potentially operating.

Criminal investigations and litigation

Gherson Solicitors’ criminal litigation, regulatory and investigatory team combine an expert knowledge of UK criminal and regulatory law underpinned by a firm understanding of digital assets and blockchain technology. As such, the team is able to provide expert strategic advice to anyone facing investigation in relation to any allegation of criminality involving cryptoassets. The team is also easily able to work with teams of lawyers over multiple jurisdictions to deal with international matters.

Regulation and compliance

In these constantly changing times, firms that deal with cryptoassets and/ or have exposure to such firms, will need to carefully consider all their systems and controls to ensure that they are able to comply with all relevant AML and sanctions regulations. Gherson’s white-collar crime and regulatory team are able to provide advice and assistance with AML and sanctions compliance, including in situations involving cryptoassets

Additionally, the team has recently started a series on the regulation of crypto, with the aim of advising those who work in the compliance of this sector. In addition, for those who would like advice on relevant issues, including those who have had issues with the FCA registration process, our specialist regulatory and compliance team can guide individuals and companies through the process.

Please do not hesitate to contact us for further advice, send us an e-mail, or alternatively, follow us on Twitter or LinkedIn to stay up-to-date.

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please do not hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

©Gherson 2023