Introduction

One of 2023's highest profile, and most contentious, legal debates continues to be the classification of cryptocurrencies and other digital assets: are they securities to be primarily regulated by the Securities and Exchange Commission (SEC)? Or are they commodities potentially subject to the Commodities Futures Trading Commission's (CFTC) jurisdiction? Or are they something else? If so, which digital assets qualify for federal regulation? These questions continue to be litigated, and are at the heart of several widely followed enforcement actions in 2023, including the SEC's recent, high-profile actions against Binance Holdings (Binance) and Coinbase (Coinbase) and their respective affiliates alleging, among other things, that certain digital assets traded on their platforms were securities. Meanwhile, state prosecutors have not shied away from this question. In March 2023, the New York Attorney General brought an enforcement action against the cryptocurrency trading platform KuCoin, alleging that KuCoin, among other things, traded several popular cryptocurrencies on its platform qualifying as either commodities or securities, including, controversially, the popular ETH coin used on the Ethereum blockchain network, but failed to register as a commodities or securities broker-dealer and had falsely represented itself as an "exchange." 

Although government enforcers plainly remain undeterred, reckoning with these thorny legal issues introduces additional complications to any enforcement action. To cut the Gordian knot, New York prosecutors increasingly take a different tack: charging defendants in the cryptocurrency space under neutral statutes that do not require the government to prove that the asset in question is a security or commodity. This growing trend has seen prosecutors bring indictments under federal wire fraud and money laundering statutes, and even the Foreign Corrupt Practices Act (FCPA). This strategy's initial success will likely encourage enforcement agencies to continue to bring innovative actions under these neutral statutes and others to crack down on perceived wrongdoing in the digital assets industry. Prudence dictates that companies dealing with cryptocurrency or other digital assets remain mindful that the disputed status of digital assets under the securities laws will not act as a shield from prosecution. The government will not hesitate to punish unlawful conduct using all the tools at its disposal.  

Insider Trading and Other Frauds

In the last year, federal prosecutors in New York have increasingly pursued convictions under the federal wire fraud statute, 18 U.S.C. Section 1343, for conduct involving digital assets that would typically be considered insider trading and prosecuted under the federal securities laws if it involved a traditional security rather than a digital asset security. The U.S. Attorneys' Office for the Southern District of New York recently achieved its first conviction under such a theory: on May 3, Nathaniel Chastain, a former employee of OpenSea, the largest online marketplace for non-fungible tokens (NFTs), was found guilty of one count of both wire fraud and money laundering. According to the indictment, at the time of the alleged offenses, Chastain was an OpenSea product manager responsible for selecting the NFT to be featured on OpenSea's homepage. As the publicity from being featured on OpenSea's homepage often resulted in substantial increases in the price that buyers were willing to pay for that NFT, as well as the prices of other NFTs made by the same creator, the identity of the selected NFT was typically kept confidential in advance of publication. Chastain was alleged to have used his confidential knowledge of upcoming, featured NFTs to purchase those NFTs, or other NFTs made by the same creator, in advance of the NFT being featured on OpenSea's homepage. Chastain then sold those NFTs shortly after they were featured, by which time they had often doubled or even tripled in value, yielding substantial profit for Chastain.