DOJ Charges Individual with NFT Insider Trading Scheme
Commentary by Ilan T. Graff
The DOJ charged a former non-fungible token ("NFT") marketplace employee with one count of wire fraud and one count of money laundering in connection with an insider trading scheme involving NFTs.
In the Indictment filed in the Southern District of New York, the DOJ alleged that the former employee (who was in charge of selecting which NFTs would be featured on the NFT marketplace's homepage) profited from that confidential business information. According to the Indictment, the employee secretly purchased dozens of NFTs shortly before they were featured and later sold them for a 100 to 400 percent profit after the NFTs were listed on the marketplace homepage. The DOJ alleged that the employee knew that the price of featured NFTs typically increased substantially, and that he conducted these transactions using anonymous digital currency wallets and anonymous accounts. The DOJ alleged that these actions were intended to conceal fraud.
Commentary
Despite the regulatory uncertainty surrounding digital assets, the SDNY indictment illustrates that actors in this space are still subject to criminal enforcement on traditional theories of fraud. Whether or not an NFT is a security is irrelevant to whether an NFT marketplace employee breached duties he owed his employer.