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Earlier today, the Department of Justice and SEC brought first-of-their-kind actions against three individuals for insider trading of crypto assets.

The facts are straightforward.  Ishan Wahi was on the Coinbase asset listing team.  That position gave him access to confidential details about future Coinbase listings.  Ishan allegedly passed this sensitive information to his brother and friend.  They traded in the tokens, reaping significant profits when Coinbase announced the listings and the token prices spiked.

Not a good idea.  Coinbase apparently got wind of this and reported it to the government.

The four-count indictment in the Southern District of New York against Ishan Wahi, Nikhil Wahi, and Sameer Ramani is a novel one in the crypto space.  While DOJ recently leveled wire fraud and money laundering charges against a former OpenSea employee arising from alleged insider trading of NFTs, it has never brought charges against a "tippee" -- a person who receives and trades on information obtained by someone else (the "tipper") in violation of a the tipper's duty to a third party.  

That changed today.  DOJ brought charges against (1) Ishan, for misappropriating confidential Coinbase listing information and providing it to Nikhil and Ramani, the brother and friend, in violation of Ishan's duty of trust and confidence to Coinbase; and (2) Nikhil and Ramani, as tippees who profited from trading in the tokens using this confidential information.  

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While these facts have all the trimmings of a classic securities insider trading case, the DOJ's indictment makes no mention of "securities."  DOJ charged the defendants with conspiracy to commit wire fraud and wire fraud, not traditional securities insider trading.

The SEC does not have that luxury.  The scope of its jurisdiction begins and ends with securities.  So for the first time in history, the SEC brought a follow-on civil enforcement action alleging insider trading in violation of the securities laws in the crypto contextThe SEC's Complaint alleges that the scheme violated Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, based on the theory that nine of the tokens that Nikhil and Ramani traded based on the tip from Ishan were "crypto asset securities."

Interestingly, those nine "crypto asset securities" (AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX, and KROM) all traded on Coinbase.  While Coinbase is not named in the SEC's complaint as an unregistered securities exchange, the implication is now plain as day.  It is unclear what consequences will result from this shot across the bow, but the SEC reportedly has declined to rule out enforcement efforts against Coinbase. 

These two cases present myriad interesting issues for the crypto space and will be closely watched.  The SEC's action also presents yet another opportunity for the fundamental question facing crypto securities cases to get a definitive answer: whether the token itself is a security or whether, by contrast, the investment contract is the offering -- the "contract, transaction, or scheme" in Howey parlance -- that references or includes it.  The distinction has major implications for exchanges that have opened their books to crypto assets that are deemed "crypto asset securities" in an SEC enforcement case years later.

Time will tell how these issues shake out in courts across the country as judges grapple with novel theories in criminal and enforcement actions like the ones brought today.