David R. Chase, P.A.
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I was recently interviewed and quoted by the Wall Street Journal on the SEC’s and FINRA’s reported investigations concerning potential insider trading and Regulation Fair Disclosure (Reg FD) violations involving approximately two hundred (200) publicly traded companies that have announced crypto treasury strategies. The cryptocurrencies being amassed are typically Bitcoin, Ethereum or Solana.
Apparently, the crux of the enforcement regulators’ inquiries center on whether the targeted companies are improperly selectively disclosing their plans to pivot to a crypto treasury approach, arguably considered material, non-public information (MNPI), to market professionals or, on a potentially more sinister level, to friends, family and others for personal benefit in advance of the release of such news to the markets. That a company is adopting a crypto treasury strategy has been market moving in the last few months, often times causing the company’s stock price to soar on the public announcement.
To better understand the potential nature and scope of this reported investigatory sweep by the SEC and FINRA, a few key terms need to be defined and explained.
Reg FD is a regulation promulgated by the SEC that bars publicly traded companies from disclosing material, non-public information selectively to particular individuals, such as market analysts, prior to the news going public. In the event a company unintentionally makes an improper selective disclosure, it is required to make that information public via a press release or the filing of an 8-K within twenty-four (24) hours. Its underlying purpose is to ensure a fair and level playing field for members of the investing public so that all have simultaneous access to the same market data. It is thus designed to prevent certain, preferred investors from obtaining an unfair trading advantage by possessing and utilizing MNPI to financially benefit themselves.
Material Non-Public Information, often referred to as MNPI, is private, confidential and critical data about a company that is not yet publicly known or available and, once disseminated, would likely impact the company’s stock price, volume and thus influence an investor’s decision as to whether to buy, sell or hold the security. Examples of MNPI include, but are not limited to, earnings results, executive leadership changes, change in dividend policy, mergers and acquisitions, FDA drug test results, analyst price targets, and legal or regulatory events.
Insider trading occurs when someone buys or sells securities based on material, nonpublic information (MNPI) obtained in violation of a duty of trust or confidentiality. While many associate insider trading with corporate executives, that is not always the case. Anyone who illegally trades, or improperly tips others, while in possession of MNPI may be held civilly and/or criminally liable.
There are two recognized theories of insider trading under the federal securities laws:
Classical Insider Trading
When a corporate insider (e.g., executive, board member, or employee) uses confidential company information to trade securities or shares the information with someone else who trades in breach of a fiduciary duty.
Misappropriation Theory of Insider Trading
When an individual outside a company (e.g., an attorney, consultant, or advisor) lawfully obtains confidential information through a professional or contractual relationship and then misuses that information to trade for personal gain in breach of a fiduciary duty or confidentiality contractual provision.
The precipitous of the SEC’s and FINRA’s investigative efforts no doubt stem from their detection of suspicious and/or highly irregular trading activity (like a spike in trading volume and/or share price) shortly prior to the public disclosures. As reported, the stock price of certain of the targeted companies jumped anywhere between 20-40% in the trading sessions prior to the news releases, with indications that there were clustered buy orders from insiders, vendors, and/ or stockbrokers. At the same time, trading volumes surged atypically, which may be indicative of coordinated trading activity. For example, Bitmine, a Bitcoin mining outfit, publicly released news of its ETH treasury plans in the last week of June and its stock price rocketed from approximately $5 on June 27 to over $46 on July 2, an almost 1000% stock price gain in a matter of days. (There is no known indication that such trading resulted from either illegal insider trading or a violation of Reg FD). The securities regulators can identify such red flag trading-related activities through their sophisticated market surveillance tools, whistleblower tips and high-tech analysis of reams of trading data. FINRA is said to be conducting examinations of broker-dealer emails, texts, and telephone calls for potential leaks of MNPI, and the SEC is tracing trades to potential tips.
If you’ve received a SEC subpoena, or are a financial adviser who has been issued a FINRA 8210 Request regarding potential insider trading in relation to a company’s crypto treasury announcement, it is critical to immediately secure an experienced SEC and FINRA defense attorney to protect your interests.
David Chase will:
Call David R. Chase, Esq. at 800-760-0912 for a confidential consultation. You can also visit www.securitiesfrauddefense.net to learn more about Mr. Chase’s securities industry experience, prior successful insider trading results, and his focused SEC and FINRA defense practice.