Digital Assets and Insider Trading
Lawsuits are Popping Up with Claims of Insider Trading of NFTs
Earlier this year, the Department of Justice announced the first lawsuit regarding insider trading that involves digital assets, specifically NFTs. Even though the sale of NFTs is not regulated by the law, the lawsuit is also based on charges of wire fraud and money laundering. Later, federal prosecutors continued to press charges against others for similar schemes.
NFTs and Insider Trading Lawsuits
The first lawsuit alleges a manager of OpenSea, Nathaniel Chastain, used confidential information that he would only have access to as an employee to illegally benefit from the purchase and sale of NFTs (non-fungible tokens). A non-fungible token refers to a digital identifier that can be purchased. Many companies have issued them as a form of currency because they are unique in that they cannot be copied, substituted, or otherwise subdivided. They are certified authentic in that they are recorded in a blockchain, which also confirms ownership.
After the first lawsuit, three more people were charged by federal prosecutors regarding illegal insider trading involving digital currency. The lawsuit alleges that an employee of Coinbase used confidential information he would only have access to, as an employee, and shared it with his brother and a friend to help them illegally profit via sales.
Insider Trading with Digital Assets
These alleged illegal schemes of insider trading have netted millions of dollars for those involved in it, and the federal government is determined to stop it. In public statements, they have said that such trading qualifies as insider trading and is fraud whether it occurs “on the blockchain or on Wall Street.” With all these lawsuits, it appears to just be a matter of time before new laws are passed regulating the trading of NFTs.
Key Takeaways on Insider Trading of NFTs
Lawsuits regarding digital assets have been filed by the federal government this year. These lawsuits are noteworthy because:
They are the first lawsuits of their kind;
They involve digital assets like NFTs; and
They likely herald the passage of new laws in the future that will govern the sale of digital currency.
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