On July 21, 2022, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) each brought insider trading charges against a former Coinbase product manager, his brother and a close friend for using material non-public information (MNPI) to purchase a variety of crypto assets prior to announcements by Coinbase that the assets would be listed on the company’s platform.
This is the first time an insider trading case has been brought by the DOJ or SEC relating to fungible tokens, and comes on the heels of the first-ever DOJ indictment for alleged insider trading related to non-fungible tokens (NFTs). (See our June 16, 2022, client alert, “‘Insider Trading’ and NFTs: What Should Companies Be Doing?”) The case also comes only a few months after the DOJ’s announcement of a National Cryptocurrency Enforcement Team.
What makes this case most noteworthy, however, is the SEC’s pronouncement in the complaint that a wide variety of the tokens involved were securities. As discussed below, this approach brought an unusual and sharp response from a commissioner of the Commodities Future Trading Commission (CFTC), raising many questions about the complaint’s implications for Web3.
Background
The DOJ indictment, unsealed by the U.S. Attorney’s Office for the Southern District of New York, and the SEC complaint, filed in the Western District of Washington, allege that, from at least June 2021 through April 2022, Ishan Wahi (Ishan), a product manager in Coinbase’s Assets and Investing Products group, repeatedly relayed MNPI about the timing and identity of which cryptocurrency assets would be made available to trade on Coinbase’s trading platform to his brother, Nikhil Wahi (Nikhil), and a close friend, Sameer Ramani (Ramani). This information was valuable because, according to both the DOJ and the SEC, when Coinbase publicly announced that it would list a cryptocurrency or token on its platform, that digital asset would typically…
