Falling cryptocurrencies (bitcoins, dogecoins, shiba coins, binance coins and other) Credit: Igor Faun/Shutterstock.com The Best-Laid Plans: Crypto Trading Plans To Limit Insider Trading Liability
This article discusses: (1) potential insider trading penalties that holders of founders' tokens can face if they trade digital assets while they possess material nonpublic information and (2) suggestions for using prophylactic Rule 10b5-1(c) trading plans for digital assets to reduce those holders' potential exposure to such risks.
August 30, 2022 at 10:00 AM
10 minute read
Last year, our firm published a New York Law Journal article predicting that regulators, including the U.S. Securities and Exchange Commission (SEC), would soon bring enforcement actions alleging insider trading in digital assets. See N. Heller and S. Enzer, "Crypto Insider Trading: What Exchanges Should Know," New York Law Journal (Dec. 6, 2021). That prediction has since come true. In a recent enforcement action accusing a former Coinbase employee and two associates of trading cryptocurrency tokens based on inside information that they allegedly misappropriated from Coinbase, the SEC asserted for the first time that nine of the tokens involved in the charged insider trading scheme were unregistered "securities" and that the scheme therefore constituted securities fraud in violation of SEC Rule 10b-5. See SEC v. Wahi, 22 Civ. 01009, Dkt. 1 (Compl.) (W.D. Wa. July 21, 2022).
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