August 14, 2022

Volume XII, Number 226

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August 12, 2022

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August 11, 2022

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SEC Investigating Lack of Insider Trading Policies for NFT/Crypto Exchanges

For quite some time, we have been advising that marketplaces and NFT/crypto issuers consider developing an insider trading policy. The SEC is now investigating this issue. If you do not have a policy this is a good time to do so.

The issue of NFT-based insider trading became more well known when a high-profile executive of an NFT marketplace was alleged to have traded NFTs based on non-public information. As we previously addressed, this individual was recently indicted for that activity. Interestingly, he was not charged for insider trading of securities. Rather, he was charged with one count of wire fraud and one count of money laundering. As this indictment shows, liability for improper trading can arise even if the NFT is not a security.

These policies cover the types of activities addressed here and others such as “wash trades” and other improper trading designed to manipulate the price or trading volume of NFTs. We have been working with a number of companies who recognized the benefits of adopting such a policy to supplement their existing policies. We would expect that in light of this indictment and the SEC investigation, more companies will do the same.

This update should be viewed in light of the SEC’s recent focus on the regulation and enforcement of digital assets. In May, the SEC announced that it is doubling the size of its Crypto Assets and Cyber Unit. In March, the SEC announced that it would be examining Fractionalized NFTs in 2022. Also in March, it was reported that the SEC was probing NFTs and had issued subpoenas related to NFT offerings. NFT market participants should be aware of these developments at the SEC and seek legal advice early and often.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 166
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About this Author

James Mattinson Blockchain Technology and Digital Currency Lawyer Sheppard Mullin Washington DC
Partner

Jim Gatto is a partner in the Intellectual Property Practice Group in the firm's Washington, D.C. office. He is also Co-Team Leader of the firm's Digital Media Industry and Social Media and Games Industry Teams, Blockchain Technology and Digital Currency team, and Team Leader of the firm's Open Source Team. 

Areas of Practice

Mr. Gatto leverages his unique combination of nearly 30 years of IP experience, business insights and attention to technology trends to help companies develop IP and other legal...

202.747.1945
Associate

Gabriel is an Associate on the Telecom team and the Co-Lead Associate on the Blockchain and Digital Assets team in the firm’s Washington, D.C. office. He is a Blockchain Law Professional as Certified by the Blockchain Council.

At Sheppard Mullin, Gabriel assists the Telecom team in all aspects of communications law and regulation including, satellites, spectrum, 5G implementation, media companies, and new technologies. He assists the Blockchain and Digital Assets team in legal issues relating to the use of blockchain technology, social media, internet, video games, online gambling,...

202-747-2194
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