U.S. law currently does not statutorily define insider trading. But it’s understood to take place when someone with a fiduciary duty executes trades on the basis of material, non-public information. Those who engage in insider trading most frequently face civil penalties pursued by the SEC and/or criminal prosecution by the Justice Department. Section 10(b) of the Securities Exchange Act of 1934 and the SEC-promulgated Rule 10b-5 provide the basis for most enforcement actions and prosecutions of insider trading. But these require that a “security” be involved. And there’s the rub: Are certain cryptocurrencies securities?
Given this uncertainty, how can two recent crypto insider trading cases brought by the U.S. Attorney’s Office for the Southern District of New York be explained? The Justice Department billed one as the “first ever digital asset insider trading scheme” prosecution and the other as the “first ever cryptocurrency insider trading tipping scheme” prosecution. Of course, prosecutors must prove any charges they bring beyond a reasonable doubt. So will these cases resolve whether the cryptocurrencies involved are securities? No, not by a country mile. Here’s why: While insider trading cases today typically involve a securities fraud allegation, they don’t necessarily have to. One white-shoe law firm notes, “there is precedent for the stand-alone use of the wire and/or mail fraud statute to prosecute insider trading.” And in some ways, removing the securities fraud component makes the government’s case easier to prove.
Source: Is Crypto Insider Trading Really “Insider Trading”? – El American
