SEC Alleges “Crypto Asset Securities” Insider Trading; Case Has Significant Implications for the Digital Asset Industry

On July 21, 2022, the SEC charged three individuals with insider trading of digital assets via a scheme to trade ahead of multiple announcements regarding crypto assets being made available on a United States-based digital asset exchange at which one individual was a former product manager. In the complaint, the SEC identifies nine “crypto asset securities” (the first time the agency has used this term) that the agency alleges are securities. The SEC also alleges that the individuals orchestrated the scheme more broadly on at least 25 digital assets — 16 of which are not identified — gaining illicit profits of more than $1.1 million. The SEC worked with the U.S. Attorney’s Office for the Southern District of New York and the FBI. DOJ separately announced the indictment of the three individuals on charges of wire fraud and conspiracy to commit wire fraud arising out of the same conduct. Interestingly, however, DOJ has not brought securities fraud charges against the individuals (at least not yet).

Members of Goodwin’s multi-disciplinary Digital Currency + Blockchain team – Mitzi Chang, Grant Fondo, Nick Losurdo, Meghan Spillane, Karen Ubell and Christopher Grobbel – share more about this topic in a recent client alert. Read more here.