Rapture #210: Major Charges for Case Related to Insider Trading

Rapture #210: Major Charges for Case Related to Insider Trading

As I mentioned on May 8th's Rapture, regulatory enforcement from the SEC was likely on the horizon. Today, a former OpenSea executive was arrested and charged with allegedly committing wire fraud and money laundering in connection with a scheme to commit insider trading. This individual faces up to 20 years in jail. The executive charged was previously accused of front-running purchases of NFTs that he allegedly knew were going to be prominently featured on OpenSea's homepage.

His behavior was originally chronicled by CryptoTwitter in September 2021, when on-chain analysts found activity that indicated an address tied to this executive had a transaction history that generated over $50,000 in profit stemming from buys of NFTs shortly before OpenSea featured them on the home page. After learning about this behavior, OpenSea fired the executive.

SDNY is the slugger of investigative offices

Interestingly, the case is being pursued by the US Attorney's Office in the Southern District of New York (SDNY). For those of you who have not followed the history of financial crime enforcement, the Southern District of New York is the most influential and active federal district court in the USA as it pertains to financial crimes. Infamous cases levied against major financial titans, from Michael Milken to Steve Cohen to Bernie Madoff, all came out of the office of the Southern District of New York. All of the most famous attorneys to prosecute financial crimes, from Rudy Giuliani to Preet Bharara, were heads of the Southern District of New York office.

In terms of law enforcement against financial crimes, the Southern District of New York is as big as it gets. They go for big wins, and they don't stop at one head: they target the nefarious practices that sprawl throughout entire industries.

Crypto is undoubtedly in the big leagues now for federal prosecutors. In my opinion, this action is just the start of many that will attempt to root out financial crimes that plague the industry. The fact the Department of Justice is painting this case as one related to insider trading, going so far as to call it the first insider trading case pursued in crypto, to me indicates that they will be actively pursuing other cases similar in nature for the foreseeable future. Furthermore, major finance papers like the Wall Street Journal are starting to produce investigative journalism related to insider trading in crypto, which adds fuels to the flames.

Potential RICO cases on the horizon

Looking at the history of financial regulatory enforcement in new industries, from junk bonds to hedge funds, I do not think it will be long before Attorney's will begin using the RICO (Racketeer Influence and Corrupt Organizations) Act to prosecute nefarious actors in crypto. In short, the RICO act is utilized to prosecute groups of people who have consistently participated in illegal crime with one another for prolonged periods of time.

Specifically, the RICO Act allows prosecutors to sentence individuals for 20 years per racketeering count and forces the convicted party to forfeit all ill-gotten gains and interests in any business utilized in a pattern of racketeering activity. Furthermore, US Attornies who indict individuals under RICO have the option of seeking junctions to temporarily size a defedent's assets and prevent the transfer of potentially forfeitable property, which is a unique tool prosecutors use that applies specifically to RICO related cases. Finally, prosecutors can seek 3x the amount of actual/compensatory damages in RICO cases.

In terms of enforcement, a RICO case is a kill shot. Usually, Prosecutors use RICO indictments to reach quick plea bargains from defendants.

The US Department of Justice undoubtedly has the crypto industry in its sights, and I do not think this case will be the last one prosecuted.


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