Insider Trading Evolving Beyond Just Securities As DOJ Targets NFTS and Crypto

In two recent notable cases involving NFTs and cryptocurrency markets — United States v. Chastain and United States v. Wahi — the Department of Justice has brought insider trading charges under the wire fraud statute without claiming that any securities were involved. These cases demonstrate the substantial flexibility federal prosecutors have — or at least believe they have — in charging insider trading and underscore the oft-recognized need for a federal statute expressly addressing insider trading.

Chastain and Wahi are developing cases. The defense in Chastain recently asked the court to dismiss the charges, arguing that the prosecution's theory fails because the NFTs at issue are not securities. The prosecutors responded that wire fraud does not require proving a connection with the purchase or sale of securities. The defendant's motion to dismiss was quickly followed by a motion to strike all mentions of "insider trading" from the indictment as prejudicial and impermissible surplusage. As of the time of this article, the government had not yet answered the motion to strike. In Wahi, however, prosecutors already have seen some success. One of the defendants, who received tips from his brother regarding which cryptocurrency assets would be listed on a marketplace, pled guilty to conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison. His sentencing is currently scheduled for Dec. 13, 2022. The case is ongoing as to the other two defendants, one of whom remains at large. The Securities and Exchange Commission filed a parallel complaint in Wahi, alleging that some of the cryptocurrency assets at issue are securities.