Just the Beginning: Digital Asset Insider Trading Arrest Foreshadows More Enforcement Actions Coming

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It was reported earlier that the US Department of Justice had announced its first arrest and pending case against an individual that utilized insider information to trade digital assets. A former OpenSea manager has been charged with leveraging his position and insider knowledge at the firm to trade non-fungible tokens (NFTs) which were scheduled to be featured on OpenSea’s home page. The individual in question allegedly experienced financial returns of 2X to 5X with the information. The transactions were managed in anonymous wallets the individual controlled as he sought to cover his tracks.

CI has received a comment on the arrest and allegations of insider trading in NFTs, from Jeffrey Alberts, partner and co-head of the Fintech Group at Pryor Cashman in New York. Alberts is also a former federal prosecutor in the U.S. Attorney’s Office for the SDNY (where the case will be heard), where he investigated and prosecuted a wide variety of white-collar criminal offenses.

Alberts told CI this is just the beginning with similar enforcement or criminal actions on the way as the Feds have now shown they will pursue possible acts of fraud within the digital asset sector – even beyond digital securities. Alberts had this to say:

“This prosecution could be just the beginning of a major sweep focused on the use of inside information relating to transactions in cryptocurrency tokens and other digital assets. The case is particularly important because the government’s insider trading charge is not based on the trading of securities. Many people who buy and sell blockchain tokens had assumed that the prohibition on insider trading applied only to tokens that are securities. The government’s aggressive use of criminal fraud statutes to apply insider trading concepts to purchases and sales of collectibles could implicate many large cryptocurrency companies who did not anticipate this move by the government.”

It will be interesting to see how far the Department of Justice will go. For many years, there have been rumors of front running or other nefarious trading actions taking place on crypto exchanges that frequently operate in multiple markets, trading various types of digital assets.

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