A four-count indictment was recently brought by the DOJ and SEC against three individuals, including a former employee of Coinbase, for alleged insider trading of crypto assets. While the DOJ brought the criminal case under the wire fraud and conspiracy statutes, the SEC asserted its claims under the securities laws – marking the first time the SEC has alleged insider trading in violation of securities laws in the crypto context.

  • The SEC action directly raises the question whether the tokens at issue qualify as unregistered securities, with significant implications for whether the platforms that facilitate trading in those tokens are potentially exposed to legal liability as unregistered securities exchanges.
  • While Coinbase is not named in the SEC's complaint as an unregistered securities exchange, the nine tokens mentioned in the complaint were all traded on Coinbase, leaving it unclear what, if any, consequences will result from the SEC’s enforcement action for Coinbase.
  • These are also the first cases to allege “tippee” liability for insider trading in the crypto sphere -- a "tippee" being a person who receives and trades on information obtained by someone else (the "tipper") in violation of the tipper's duty to a third party.
In this client alert, Douglas Pepe, Christian Everdell, and Jesse Greenwald discuss the myriad of issues this case presents for the crypto sphere and analyze the potential implications on crypto exchange if the SEC’s action is successful.