Pillow talk from an FBI agent trainee. A former congressman turned consultant trading on merger information learned on the job. A former Goldman Sachs investment banker misappropriating information about deals the bank was considering financing. The former co-chairman of Apple’s Disclosure Committee buying and selling his company’s stock based on insider information. These recent charges indicate a renewed focus on one of the most basic of federal frauds — stealing confidential information and using it to make money on the stock market. In addition to these recent traditional cases, however, the government has also pursued insider trading cases involving digital assets and cryptocurrency, further evidence that the Department of Justice (“DOJ”) is prioritizing insider trading cases.
Recent Insider Trading Misappropriation and Tipping Cases
United States of America v. Seth Markin and Brandon Wong
Seth Markin was an FBI agent trainee. His girlfriend was an attorney at a major law firm in Washington, D.C. assigned to work on the acquisition of Pandion Therapeutics by Merck & Co. Markin is alleged to have secretly looked through his girlfriend’s confidential work documents, without her permission, and learned that Merck was going to acquire Pandion. Markin then purchased stock in Pandion and informed his friend Brandon Wong, who told other people. According to the government, Markin and Wong directly or indirectly caused more than 20 people to trade in Pandion stock based on the material non-public information that Markin misappropriated from his girlfriend, resulting in millions of dollars of illegally obtained trading profits.
United States of America v. Stephen Buyer
Stephen Buyer was a former U.S. Congressman from Indiana, who served nine terms in Congress from 1993-2011. He is alleged to have engaged in two separate, but interrelated insider trading schemes to steal material non-public information that he obtained through consulting work, and then used to make securities trades for a profit of almost $350,000. Buyer worked as an outside consultant for T-Mobile and had been retained to work on T-Mobile’s merger with Sprint. In advance of the announcement of the deal, Buyer purchased shares of Sprint across several brokerage accounts, including his own accounts, an account held jointly with his cousin, and an account in the name of a close personal friend. After the announcement of the merger, he sold the shares for a large profit.
In a separate scheme, Buyer was alleged to have learned that the consulting firm he worked for was going to buy Navigant Consulting, Inc., another consulting firm. In advance of that deal, he purchased shares of Navigant, again using his own accounts, an account held jointly with his cousin, and an account in the name of a close personal friend.
United States of America v. Amit Bhardwaj, Srinivasa Kakkera, and Abbas Saeedi
Amit Bhardwaj was the chief information security officer of Lumentum Holdings Inc. In this role, he had confidential inside information that Lumentum was considering the acquisition of two companies, Coherent, Inc., and Neophotonics Coproration. Bhardwaj allegedly used his inside information to purchase stock of Coherent and also tipped friends and a family member who purchased stock in Coherent. They collectively profited to the tune of nearly $900,000. In another alleged scheme, Bhardwaj learned that Lumentum was engaged in confidential discussions with Neophotonics about a potential acquisition. Bhardwaj allegedly provided this material, non-public information to two co-defendants and another individual who then traded in Neophotonic securities. As a result, they collectively made more than $4.3 million in realized and unrealized gains, with one of the individuals agreeing to split his profits equally with Bhardwaj.
United States of America v. Brijesh Goel
Brijesh Goel was an investment banker in the financing group at Goldman Sachs. In that position, he is alleged to have received confidential internal emails directed to the investment bank’s Firmwide Capital Committee, which contained detailed information and analyses of potential mergers and acquisitions transactions the investment bank was considering financing. In violation of the duties that he owed to the investment bank, he allegedly misappropriated that confidential information and tipped a friend, allegedly during squash games, the names of potential target companies. The other person then allegedly used the material, non-public information to trade call options, including short-dated, out-of-the-money call options, in brokerage accounts that were in the name of that individual’s brother. Goel and the friend agreed to split the profits from their trading and allegedly made approximately $280,000.
United States of America v. George Haywood
On July 26, 2022, George Haywood pleaded guilty to one count of insider trading. Haywood was a financial services professional managing investments of family and friends. He had previously invested in Neurotrope, a clinical-stage biopharmaceutical company, which announced on January 22, 2020, that it had received a multimillion-dollar grant from the National Institute of Health following positive clinical trials for a medicine to treat Alzheimer’s. That same day, Haywood spoke to a representative of Neurotrope who offered to share material non-public information with him on the condition that he not execute or attempt to execute any stock trades with that information. Haywood agreed to the condition and was told that Neurotrope would be issuing a registered direct offering of shares later that day. Haywood immediately sold more than 100,000 shares and avoided a loss of approximately $180,000 when the stock dropped nearly 50% after the offering was announced.
United States of America v. Gene Levoff
On June 30, 2022, Gene Levoff pleaded guilty to six counts of securities fraud. Levoff had been the top corporate attorney at Apple and co-chairman of Apple’s Disclosure Committee, which reviews the company’s SEC filings before they are publicly disclosed. Levoff reviewed these materials to guide his decisions on when to buy and sell Apple stock ahead of the company’s earnings announcements. When Apple had strong revenue and net profit for a given financial quarter, Levoff purchased Apple stock and then sold it for a profit when the earnings became public. Relatedly, when Apple had lower anticipated revenue for a quarter, he sold his stock to avoid losses when the news became public and the stock price dropped. Additionally, Levoff disregarded regular “blackout periods,” which prohibited employees from selling company stock until a certain period after the company disclosed its earnings publicly. He also ignored the company’s “Insider Trading Policy,” which he was responsible for enforcing, when trading based on material non-public information. As a result of this unlawful activity, Levoff realized profits of approximately $277,000 and avoided losses of approximately $377,000.
Digital Asset and Cryptocurrency Insider Trading Cases
United States of America v. Nathaniel Chastain
On June 1, 2022, the DOJ unsealed an indictment against Nathaniel Chastain, charging him with wire fraud and money laundering in connection with an alleged scheme to commit insider trading in Non-Fungible Tokens. (“NFTs”). Chastain was a product manager at Ozone Networks d/b/a Open Sea, which is the largest online marketplace for the purchase and sale of NFTs. As part of his job, he was responsible for selecting the NFTs to be featured on OpenSea’s homepage. This information was kept confidential until it appeared on the homepage. When an NFT was featured on OpenSea’s homepage, the price buyers were willing to pay for that NFT, and others made by the same NFT creator, typically increased substantially. Chastain is alleged to have used this confidential business information about what NFTs were to be featured on OpenSea’s homepage to secretly buy them before they were featured. After they were posted on OpenSea’s homepage, he would sell them at profits of two to five times what he paid for them.
United States of America v. Ishan Wahi, Nikhil Wahi, and Sameer Ramani
On July 21, 2022, the DOJ announced what they referred to as the “first ever cryptocurrency insider trading tipping scheme.” Ishan Wahi, Nikhil Wahi, and Sameer Ramani were charged with wire fraud conspiracy and wire fraud in connection with a scheme to commit insider trading in cryptocurrency assets by using confidential Coinbase information about which tokens were scheduled to be listed on Coinbase’s exchanges. Coinbase is one of the largest cryptocurrency exchanges in the world. Periodically, Coinbase added new crypto assets to those that could be traded through its exchange, and the market value of crypto assets typically increased significantly after Coinbase announced that it would be listing a particular crypto asset or token. Accordingly, Coinbase kept such information strictly confidential and prohibited its employees from sharing that information with others, including by providing a “tip” to any person who might trade based on that information. Ishan Wahi worked at Coinbase as a product manager assigned to a Coinbase asset listing team. In that role, he was involved in the highly confidential process of listing crypto assets on Coinbase’s exchanges and had detailed, advanced knowledge of which crypto assets Coinbase was planning to list and the timing of public announcements about those crypto asset listings.
The indictment alleges that on multiple occasions, Ishan Wahi tipped his brother Nikhil Wahi or his friend Sameer Ramani about Coinbase’s plans to list particular crypto assets and the timing of Coinbase’s public announcements of those asset listings. Nikhil Wahi and Sameer Ramani then placed profitable trades in those crypto assets in advance of Coinbase’s public listing announcements. The indictment alleges that the defendants collectively generated realized and unrealized gains totaling at least approximately $1.5 million from this scheme.
Takeaways From These Cases
These recent cases reveal both the old and the new with respect to insider trading cases. Traditional insider trading cases are again a focus of the government. These cases follow common themes:
- A person learns of upcoming mergers from a close friend or relative.
- A consultant trades based on information learned in the scope of a consulting engagement.
- Company executives, who learn of material non-public information, make stock trades or tip friends or family based on that information.
As these recent cases show, there is no stereotypical person who engages in insider trading. One would not generally suspect an FBI agent-in-training, a former congressman, or the head of a public company’s disclosure committee to be charged with insider trading. But it happened and is a strong reminder for companies to review and renew employee training on appropriate use and handling of confirmation information. It is important to know that, even if you did not personally steal or misappropriate the material non-public information, you can still be held liable if you knew it was misappropriated. And, even if you did not personally trade on the stolen information, if you misappropriated it and gave it to someone, you could still be liable.
Perhaps more interesting are the DOJ’s indictments in the digital asset and cryptocurrency cases. These appear to signal increased enforcement in the worlds of digital assets and cryptocurrency. Notably, in both the OpenSea NFT case and the Coinbase cryptocurrency case, the DOJ charged wire fraud as opposed to a traditional securities insider trading charge. While a parallel SEC complaint in the Coinbase matter specifically refers to the tokens involved as “crypto asset securities,” the DOJ indictment does not mention the word “securities.” This raises a significant issue that will have to be addressed. While the SEC referred to the tokens as securities, it is still an area of unsettled law as to whether they should be treated as securities. This may be why the DOJ instead relied on the wire fraud statute and did not refer to the tokens as “securities.” In any event, these cases further highlight the issue of whether crypto assets constitute securities and should be monitored by people active in cryptocurrency markets.