Cryptoassets and Insider Trading

29 Jul 2022, 45 mins ago

US DoJ brings charges in relation to allegations of insider trading concerning an increasingly wide variety of cryptoassets

The US Department of Justice (“DoJ”) has just again brought charges in relation to alleged insider trading involving a cryptoasset, this time specifically concerning cryptocurrency markets. 

This follows previous separate charges bought by the DoJ involving alleged insider trading in relation to another type of cryptoasset, specifically non-fungible tokens (“NFT”s). 

The DoJ is therefore bringing criminal fraud and money laundering charges in relation to allegations of insider trading across an increasingly wide variety of cryptoassets.   

In addition, the imposition of enforcement action for securities fraud by the US Securities and Exchange Commission (“SEC”) has led some to suggest that the SEC are also trying to assert their authority in this space.

Background – first NFTs, now cryptocurrencies

On 9 June 2022 we reported how the US DoJ had charged an individual in relation to the first ever digital asset insider trading scheme.  This scheme allegedly involved insider trading in relation to digital assets in the form of NFTs.   This followed a press release on 01 June 2022 from the DoJ noting charges brought against a former NFT market place employee for wire fraud and money laundering in connection with an alleged insider trading scheme.

This was the first time that insider trading charges have been brought involving trading in digital assets (specifically NFTs).

Well on 21 July 2022 the DoJ announced the unsealing of an indictment charging three individuals with wire fraud conspiracy and wire fraud in connection with a scheme to commit insider trading in cryptocurrency assets using confidential information. This was reported as the first ever cryptocurrency insider trading tipping scheme. 

New technologies and old criminal schemes

As has previously been discussed, this is not the first time that criminal charges have been made against individuals alleged to have used new technologies to engage in old criminal schemes.   Charges relating 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 and in  a follow up article.

These articles focussed on how new technologies (specifically digital assets) would enable criminals to commit the old offences of fraud and money laundering and looked at an allegedly fraudulent cryptocurrency scheme.   The articles then examined how cryptoassets could produce new ways to carry out old tricks, and whether regulatory agencies and prosecuting authorities are able to use the old legal tricks to catch up.

The articles concluded that although these new technologies could provide headaches, agencies and authorities have used tried-and-tested methods underpinned with a bit of common sense and understanding of this new technology to investigate and prosecute effectively, and then pondered if we were about to see new cases. 

Interesting features of the latest case

There are several interesting features in this latest case.  Specifically the SEC has also brought enforcement action.  As has been reported by Finextra from an earlier Bloomberg article, this is on the basis that “the SEC has launched an investigation into whether Coinbase let customers trade digital assets that should have been registered as securities”.  Finextra also report that this has elicited a powerful response from Coinbase, who published a blog titled “Coinbase does not list securities.  End of story”.

Indeed, Bloomberg reported the opinion of Usha Rodrigues, business law professor at the University of Georgia who said “The SEC isn’t ceding any grounds.  It has the jurisdiction to regulate in this space and it wants to assert its authority to do so”.  Indeed, many are describing this is what might be an interesting turf war.

This has led many to reinforce the case for the need for a comprehensive regulatory framework for digital assets.  Gherson’s own criminal litigation, regulatory and investigations team have long argued for the need for a comprehensive regulatory regime in the UK.

Meanwhile back in the UK

We have previously reported how HMRC have seized three NFTs in relation to an investigation into suspected VAT fraud. 

However, surely it is now only a matter of time before we will be seeing increasing charges brought by UK prosecuting authorities or regulatory agencies directly against those alleged to be involved in crooked schemes involving cryptoassets.

Criminal investigations and litigation

Gherson Solicitors’ criminal litigation, regulatory and investigatory team combine an expert knowledge of criminal and regulatory law underpinned with 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.

Regulation and compliance

In these constantly changing times, firms that deal with cryptoassets, and additionally have exposure to firms that do, will need to carefully consider all their systems and controls to ensure that they are able to comply with all relevant AML and sanctions regulationsGherson’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 advice, send us an e-mail, or, alternatively, follow us on TwitterFacebook, 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 2022