The US Attorney's Office, working with the Federal Bureau of Investigation (FBI), recently commenced actions in the first insider trading cases involving digital assets on the following two platforms:

On June 1, 2022, US Attorney's Office unsealed the indictment in the US District Court for the Southern District of New York (SDNY) of a product manager at OpenSea (the largest online marketplace for non-fungible tokens (NFTs)), Nathaniel Chastain, on charges of wire fraud and money laundering to commit insider trading for personal gain. Chastain was a product manager at OpenSea who chose the NFTs featured on OpenSea each week. Using anonymous OpenSea accounts and digital currency wallets, Chastain purchased NFTs that he knew would be featured on OpenSea.

Once an NFT was featured on the OpenSea's homepage, consumers were typically willing to pay significantly more for that NFT and other NFTs by the same creator. OpenSea began featuring specific NFTs on its homepage around May 2021, featuring a few NFTs each week. Consumers were unaware of which NFTs would be featured until they were published on OpenSea's homepage. Chastain's position at OpenSea required that he keep confidential all information not generally known or available outside OpenSea, including his knowledge of the NFTs not yet featured on the OpenSea homepage.

According to the indictment, from at least June 2021 to about September 2021, Chastain would purchase dozens of NFTs once he knew they would be featured on OpenSea's homepage, then sell them for three to five times the purchase price shortly after they were featured on OpenSea.

On July 21, 2022, the US Attorney's Office unsealed the indictment of a product manager at Coinbase, Ishan Wahi, and two other individuals (collectively defendants) in the SDNY on charges of wire fraud conspiracy and wire fraud in their insider trading scheme for personal gain. Wahi was a product manager at Coinbase who had access to confidential information regarding the cryptocurrency assets Coinbase would publicly list.

Prior to announcements by Coinbase that it would be listing a certain cryptocurrency, Wahi would inform one of the other defendants of the asset being announced. Defendants would then purchase the asset in advance of Coinbase's announcement and later sell the asset at a higher price using several anonymous Ethereum blockchain wallets, including new wallets without prior transaction histories. Defendants traded in at least 25 different cryptocurrency assets through at least 14 separate acquisitions, making approximately $1.5 million.

The SEC, in a separate civil suit, filed a complaint against Wahi and the other defendants in connection with a scheme to commit insider trading, stating specifically that:

The SEC asked the court to enter a final judgment against defendants finding that they violated federal securities law, permanently enjoining them from engaging in conduct that violates the Securities Exchange Act of 1934, as amended (Exchange Act), ordering them to pay civil penalties under the Exchange Act, and ordering them to disgorge an amount equal to their illicit proceeds.

In its complaint, the SEC identifies the following nine digital tokens that it asserts defendants traded, which the SEC asserts are digital asset securities under the Howey test. The complaint includes a Howey analysis of these tokens, which the SEC asserts gives it jurisdiction over this matter:

The SEC notes in its complaint that the companies offering these tokens marketed them as investments with substantial growth potential that could be traded on secondary trading platforms.

Update: On August 1, 2022, Binance.US posted on its blog that it will delist AMP from its trading platform effective August 15, 2022.

Update: On September 12, 2022, the US Attorney's Office issued a press release stating Nikhil Wahi, brother of Ishan Wahi, has pled guilty in this matter to conspiracy to commit wire fraud in connection with a scheme to commit insider trading in cryptocurrency assets.

Update: On January 10, 2023, the US Attorney's Office issued a press release stating that Nikhil Wahi has been sentenced to 10 months in prison for his participation in a scheme to commit insider trading in cryptocurrency assets by using confidential information obtained from his brother, Ishan Wahi. In addition to the prison sentence, Nikhil Wahi was ordered to pay $892,500 in forfeiture.

Update: On February 7, 2023, the US Attorney’s Office issued a press release stating that former Coinbase product manager Ishan Wahi pled guilty to two counts of conspiracy to commit wire fraud in connection with a scheme to commit insider trading in cryptocurrency assets.