Reaffirming DOJ’s focus on digital assets, the U.S. Attorney’s Office for the Southern District of New York today charged a defendant, for the first time ever, with insider trading in non-fungible tokens (NFTs).
The trading took place on OpenSea, which is the biggest online NFT market. The defendant was an employee of OpenSea and is alleged to have used confidential information about prospective NFTs to purchase dozens of them. The defendant was then alleged to have sold the NFTs for two to five times their initial purchase price on the basis of his inside information that the NFTs were going to be released. (NFTs increase in price significantly after they are first featured.) The defendant allegedly attempted to cover up his scheme using anonymous digital currency wallets and anonymous accounts on OpenSea.
This prosecution is significant for several reasons:
- It demonstrates that prosecutors are, in fact, going to follow the new administration’s stated plans to focus on digital assets;
- it demonstrates that the FBI is keeping up technologically with alleged criminals who seek to hide their crimes using anonymous wallets; and
- it demonstrates that anti-money laundering is not going to be the sole focus of prosecutors in this area.
Although the defendant is charged with money laundering (on top of wire fraud), this matter shows that prosecutors are delving into the cryptocurrency world to catch insider traders, including those who trade in digital assets.
This is an ideal time for all companies to reevaluate their insider trading policies to ensure that they account for digital assets, and to consider whether employees should be permitted to trade using anonymous wallets and accounts.