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Bloomberg: Bitcoin Market Poised for CFTC Insider Trading Scrutiny

By Lydia Beyoud and Andrew Ramonas

  • Allegations of Bitcoin Cash trading with nonpublic information likely to draw federal scrutiny, attorneys say
  • Cryptocurrency enforcement could flesh out CFTC's little-used insider trading authority

Federal regulators looking for a way to target suspicious cryptocurrency trading may turn to a little-used insider trading regulation put in place after the 2010 Dodd-Frank Act.

The Commodity Futures Trading Commission, which has been one of the most proactive federal regulators in allowing the crypto market to flourish, has the authority to regulate insider trading on spot markets, when commodities are traded for immediate delivery rather than future delivery.

The CFTC has only twice used the rule it adopted in 2011 that bars commodities trading based on nonpublic information secured through deception or fraud, or in violation of a duty to keep information confidential.

The rules could be an attractive tool as federal scrutiny of crypto markets grows.

“Insider trading is something they care deeply about from a market integrity standpoint, so from that perspective, they're likely to look at it,” Annette Nazareth, a former Democratic Securities and Exchange Commission member and current partner at Davis Polk & Wardwell LLP in Washington, told Bloomberg Law.

Allegations of potential insider trading related to events involving one of the most reputable cryptocurrency exchanges — Coinbase — arose last month after the firm announced it would add to its exchange Bitcoin Cash, an offshoot of Bitcoin created in August.

The price of Bitcoin Cash, already traded on other exchanges, began rising a day before Coinbase's announcement, and then ticked up significantly just hours before the public announcement.

A Coinbase representative declined to comment to Bloomberg Law, pointing to an earlier statement on its internal investigation. Coinbase CEO Brian Armstrong said in the statement the company prohibits employees from trading on nonpublic information, and anyone found doing so would be terminated and possibly face legal action.

Securities lawyers told Bloomberg Law the events at Coinbase likely drew the attention of Washington regulators.

“I do think they're going to be enticed by this, and I would think that they are actively engaging Coinbase on the matter,” said former Republican SEC commissioner Paul Atkins, CEO of financial consulting firm Patomak Global Partners LLC in Washington.

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In the NewsIanthe Zabel
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