bit¢oin$

Rule 10b5-1 does define what insider trading is, fwiw
https://www.law.cornell.edu/cfr/text/17/240.10b5-1🕸

I’ve got some material nonpublic information about my ass I can sell you if you act now

wait what are the non-securities contexts where insider trading applies?
― 龜, Thursday, January 5, 2023 10:16 PM (twenty-one seconds ago) bookmarkflaglink

i think theres been commodity market insider cases, and of course the famous nft case from the article, but what i was tryin to say is insider trading is almost exclusively prosecuted re securities not because theyre regulated in some special way but rather because insider trading happens with securities a lot

because the opportunity exists a lot, you could say insider trading is a fundamental truth about the structure of the securities market

CFTC also has a specific regulation on insider trading though.

insider trading is exclusively prosecuted re: securities because it is a crime that was created re: securities lol

theres an underlying opportunity for fraud that was criminalized

CFTC also has a specific regulation on insider trading though.

― longtime caller, first time listener (man alive), Thursday, January 5, 2023 10:26 PM (two minutes ago) bookmarkflaglink

yeah because people are always doing it because its a nice crime

insider trading is pretty much based on caselaw, there is no statutory basis iirc https://en.wikipedia.org/wiki/Insider_trading#Court_decisions

― 龜, Thursday, January 5, 2023 7:18 PM (two hours ago)

Insider Trading Sanctions Act of 1984 - Amends the Securities Exchange Act of 1934 to permit the Securities and Exchange Commission, whenever it appears that any person has traded in securities while in possession of material nonpublic information, to seek an order in a district court action requiring the violator, or anyone who aided and abetted the violation, to pay a civil penalty of up to three times the profit gained or loss avoided as a result of the unlawful transaction.

https://www.congress.gov/bill/98th-congress/house-bill/559

…and?

many lawyers itt, but only one true philosopher of the law (me)

sorry, just wanted a clarification on what you mean that there is not statutory basis? Isn't that statue specifically directed towards insider trading?

that is a statue that specifies what kind of penalties can be recovered from insider trading crime-doers. it doesn’t actually create a crime of insider trading that prosecutors can bring charges under

so where do the criminal penalties the Insider Trading Sanctions Act provides arise from, if there is no crime to be charged?

you mean civil penalties, and they arise from insider trading cases brought under rule 10b-5, which is not a statute passed into law by congress but is a rule created by the securities and exchange commission pursuant to authority granted to it by congress under the securities exchange act of 1934

so insider trading is only "statutory" for civil penalties and not criminal? how are criminal cases charged then?

Securities fraud is statutory under Section 10(b) of the securities exchange act of 1934 (a statute and is passed by congress). Insider trading is not mentioned in Section 10(b) but came about later in SEC Rule 10b-5, which defined that insider trading is a form of securities fraud. SEC Rule 10b-5 is a regulation promulgated by an agency (SEC) under authority granted by the statute, not directly passed by congress, so it is regulatory, not statutory. Interesting from Wiki:

In 1942, SEC lawyers in the Boston Regional Office learned that a company president was issuing pessimistic statements about company earnings while simultaneously purchasing the company's stock. Although the Securities Act of 1933 prohibited fraudulent sales of securities, no regulation existed at that time which would have precluded fraudulent purchases. Rule 10b-5, issued by the SEC under section 10(b) of the Exchange Act, was implemented to fill this regulatory void. The commissioners approved the rule without debate or comment, with the exception of Commissioner Sumner Pike who indicated approval of the rule by asking, "Well, we are against fraud, aren't we?"

so insider trading is only "statutory" for civil penalties and not criminal? how are criminal cases charged then?

Well, as my White Collar Crime professor drilled into us, the most common federal crime is violating 18 USC 1001, which criminalizes lying to government agents. So if you insider trade and the FBI stops by and asks if you insider traded and you say anything materially false, like, "I got the information from my dog," they got you.

My favorite insider trading case is US v. Switzer, involving former U of OK and Dallas Cowboys Coach Barry Switzer:

41. Sometime in the afternoon, after his last conversation with G. Platt, Switzer laid down on a row of bleachers behind the Platts to sunbathe while waiting for his son's next event. While Switzer was sunbathing, he overheard G. Platt talking to his wife about his trip to New York the prior day. In that conversation, G. Platt mentioned Morgan Stanley and his desire to dispose of or liquidate Phoenix. G. Platt further talked about several companies bidding on Phoenix. Switzer also overheard that an announcement of a "possible" liquidation of Phoenix might occur the following Thursday. Switzer remained on the bleachers behind the Platts for approximately twenty minutes then got up and continued to move about.

10b-5 didn't establish insider trading is a form of fraud, it just said it's unlawful to "employ any device, scheme or artifice to defraud" and other prohibitions around fraud.

§ 240.10b-5 Employment of manipulative and deceptive devices.
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,

in connection with the purchase or sale of any security.

the actual law of insider trading involving tippees, misappropriation of information, all the stuff you read about in the cases, comes about from what the courts have read into 10b-5.

haha that switzer anecdote - michael mann movie about insider trading.

so insider trading is only "statutory" for civil penalties and not criminal? how are criminal cases charged then?

― bulb after bulb, Thursday, January 5, 2023 11:32 PM (yesterday)

i'm getting ahead of my skis but there is a provision in the exchange act that allows for criminal penalties, but the insider trading still has to fit under the 10b-5 caselaw. this law journal article that is very riveting and interesting (as all law journal articles are) gives a good overview, even though it's old: https://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=6290&context=jclc

anyway, the point is that federal law prohibits fraud but doesn't say anything about the act of 'insider trading'. instead, prosecutors have said various fact patterns that we now recognize as looking like insider trading is a form of fraud, and the caselaw has developed organically from there.

you'll notice the NFT insider trading case up there was not brought under 10b-5 or any statutes involving securities, it's a wire-fraud case where they're saying the fraud looks just like the fact patterns we associate with insider trading cases, and the defense would be hey hold up, NFTs are not securities so why does it even matter if it looks like insider trading, which is about fraudulently trading securities.

so the problem with trying to prosecute these crypto cases is what law are they violating, because there isn't anything on the books yet regarding crypto. the SEC has an interest in making crypto look like securities because there's a whole well-known body of law there, and i think there's a good argument that a lot of crypto out there with voting rights etc. does look like a security, but then there's a lot of weird in-between and edge cases. and of course the law moves very slowly, and we all feel that a lot of fraud and insider trading type stuff was going on during the crypto bubble, but trying to fit that into the law we have is going to take a lot of time and a lot of cases brought and tried to see what sticks under our current regime.

insider trading is exclusively prosecuted re: securities because it is a crime that was created re: securities lol

― 龜, Friday, 6 January 2023 03:26 (ten hours ago) link

That’s true, but Rule 10b5-1, which codifies what insider trading is in a securities context, has been on the books for over 20 years (I think

Now I’m curious to look up attempts to impose criminal or civil liability for insider trading outside the securities context. Fun Friday.

Little known fact: lawyers get “free choice time” on Fridays where they get to research a topic of their choice

xp thank you 龜! will give that Northwestern article look. and need to read more on the last point re: are cryptos a security. as with everything crypto, it's a bit elusive for me.

now I'm no fancy big city lawyer your honor, I'm just a simple farmer. But I can tell you one thing - if it smells like shit, you're probably steppin in it.

xp It makes intuitive sense to me that something like bitcoin isn't a security.

The Howey test defines a security as "an investment of money in a common enterprise with profits to come solely from the efforts of others; and, if that test be satisfied, it is immaterial whether the enterprise is speculative or nonspeculative, or whether there is a sale of property with or without intrinsic value”.

A coin like bitcoin or doesn't have profits and it isn't a common enterprise. However I think there are specific situations where they found a coin or token to be a security because the way it was designed it was basically just an investment vehicle labeled as a crypto coin/token.

It's weird though. Like a piece of property isn't a security, but you could divide up the ownership interest in a piece of property ten ways and the ownership interests are securities. So you could probably do the same with a fund that just owns a bunch of bitcoin and the interests could be securities. Like you own one bitcoin - the bitcoin isn't a security. You own 1/10 of a fund that owns 10 bitocins - your 1/10 of 10 bitcoins is a security.

I guess the idea is that with the 10 bitcoin fund, you now have an ownership interest in an enterprise and hypothetically need the protection of regulations that make sure the enterprise or its owners aren't defrauding you. Whereas bitcoin itself can't defraud you.

It's weird though. Like a piece of property isn't a security, but you could divide up the ownership interest in a piece of property ten ways and the ownership interests are securities.

― longtime caller, first time listener (man alive), Friday, January 6, 2023 9:49 AM (four hours ago) bookmarkflaglink

they even call it securitizing

yep, and securities of an ownership interest in a piece of real property is a REIT (a popular investing vehicle whose securities are traded on many securities exchanges)

That’s true, but Rule 10b5-1, which codifies what insider trading is in a securities context, has been on the books for over 20 years (I think

Now I’m curious to look up attempts to impose criminal or civil liability for insider trading outside the securities context. Fun Friday.

― longtime caller, first time listener (man alive), Friday, January 6, 2023 8:52 AM (six hours ago)

yeah but how many insider trading cases are brought exclusively under 10b5-1 ? this memo a few years after adoption suggests not many: https://www.akingump.com/a/web/1044/aogHi/683.pdf

as far as i can tell, 10b5-1 is just used for c-suite folks to design trading plans that let them sell stock into the market because 10b5-1 outlines the affirmative defenses you can have for doing so, and when they get pinched it's for not adhering to those plans: https://corpgov.law.harvard.edu/2022/10/10/sec-charges-executives-with-insider-trading-10b5-1-plan-provided-no-defense/

if you look at the language of 10b5-1 too, it's nonexclusive - it says insider trading "includes, among other things, blah blah blah..." the SEC knows better than to pigeonhole itself into a narrower definition.

https://fakemoneynews.substack.com/p/shorting-tether-for-fun-and-profit

think it goes a lil deeper than counter party and protocol risk described in that piece, call it ecosystem risk once tether depegs the entire crypto economy crashes eg the usdc their using for their trade will depeg too, shorts prob wouldve taken it all down by now otherwise which is an interesting situation

This entire thread is quoted in a new CFTC civil complaint against himhttps://t.co/oYSmbu4Ik0 https://t.co/dfXNxAn8CF pic.twitter.com/68LJrfs90x

— Jacob Silverman (@SilvermanJacob) January 9, 2023

police love social media

thats civil but he was also arrested

👇Arrested in Puerto Rico yesterday and charged with commodities fraud and manipulating the Mango crypto exchangehttps://t.co/MT31TPcmda https://t.co/gFy2FJNBm9

— Jacob Silverman (@SilvermanJacob) December 28, 2022

oopsy

when you find yourself about to tweet "I believe all of our actions were legal" maybe talk to your lawyer instead

that's what I love about these guys, they will post through it no matter how many times a lawyer says to stop

crypto snitches, tweeting all their business
sit in the court and be their own star witness

the answer I'd jump to is "because it's a scam" but this guy has more thoughts

https://fakemoneynews.substack.com/p/shorting-tether-for-fun-and-profit

Welp, crypto insider trading is *officially* a thing now:

https://www.justice.gov/usao-sdny/pr/tippee-pleads-guilty-first-ever-cryptocurrency-insider-trading-case

Basically the guy got inside info from Coinbase on which currencies were about to be listed and would trade them before the listing was announced.

same scenario as the nft one, kinda funny prices driven by availability on an exchange rather than say some sort of financial quality

#onethread

Markets are highly unstable institutions. When other institutions exhibit such instability, we question, criticize, change or end them. But market idolatry is like religion. People dare not think critically about markets. Most just suffer them meekly. https://t.co/J80jq8EiEQ pic.twitter.com/3lwloYK4fm

— Richard D. Wolff (@profwolff) January 9, 2023

all sorts of anti social behavior spiked during the pandemic

Frog that seems like kind of a simplistic tweet from an often simplistic dude. Are you quoting it unironically/uncritically?

I'm just amused both graphs have the same shape

/Welp, crypto insider trading is *officially* a thing now:

https://www.justice.gov/usao-sdny/pr/tippee-pleads-guilty-first-ever-cryptocurrency-insider-trading-case

Basically the guy got inside info from Coinbase on which currencies were about to be listed and would trade them before the listing was announced.

― longtime caller, first time listener (man alive), Tuesday, January 10, 2023 11:48 AM (twenty-three minutes ago)

wire fraud charge and not a 10b-5 charge...

still waiting for The Big One

yeah I don't think they're going to do crypto insider trading as securities fraud. At least not most of it. As I said upthread there are situations where you can argue that a "Crypto" asset is a security, but the "coins" themselves (btc, eth, etc.) typically aren't.

i love wolff. great tiktoks from a professor emeritus imo

As I said upthread there are situations where you can argue that a "Crypto" asset is a security, but the "coins" themselves (btc, eth, etc.) typically aren't.

― longtime caller, first time listener (man alive), Tuesday, January 10, 2023 12:24 PM (forty-eight minutes ago) bookmarkflaglink

as you said right after i said

i said it first but very quietly

Crypto lender Nexo, which pulled out of the US market last month, is being investigated in its home country of Bulgaria. Offices raided. https://t.co/0jaBMZVMmR pic.twitter.com/lyNI05a4BD

— Jacob Silverman (@SilvermanJacob) January 12, 2023