A former Coinbase employee has been charged in the first-ever insider trading scheme in the crypto space. What does the case mean for potential regulation, and will the SEC end up regulating crypto? Jeff Roberts, Crypto Editor at Fortune magazine and author of "Kings of Crypto," joins Closing Bell to discuss. 

Closing Bell

Former Coinbase Employee Charged in First-Ever Crypto Insider Trading Scheme

I want more big news in the crypto space, but this time it's actually not price related federal authorities bringing forward the first ever Cryptocurrency Insider trading case accusing a former coin based product manager, his brother and their friend of making off with 1.5 million in illegal profits. Well now there's a new layer, the sec bringing a civil case against the defendants alleging that seven cryptocurrencies listed on coin base are unregistered securities. So what does this mean for a sector that so far hasn't seen major legal action by the Feds. And joining me now is Jeff roberts, crypto editor at Fortune magazine and author of Kings of Crypto Jeff. This news pretty shocking here. I know your book is actually about the rise of coin base now a publicly traded company. Is this a surprise to you that we reached this point? Not really, this was gonna happen sooner or later. I mean the optics from coin based are not good. I mean, what happened is they were started ramping up to how many assets they listed to buy all these exotic coins. One of the guys in charge of, you know, choosing and teeing that up was tipping his brother and his friend to trade on them because there's something called the coin base effect when they're listed, the prices pop. So this is like seriously illegal stuff. Um you know, it can happen. The stock market too, but you trade on inside information like this. People go to jail over this, that's what's going to happen to these guys, I think. Well, I'm sure obviously for the feds to bring a case forward, the sec, they've got to feel pretty confident that they do have a strong case here Jeff this market, the Cryptocurrency market way, way less regulated clearly than the broader stock market, which the sec does oversee. This is the first case of its kind. But do you expect more might be on the horizon. It was going to happen sooner or later. I mean this happens like you know, at the stock exchanges and anywhere else where there's the temptation all it takes is someone to get greedy. That's not something unique to crypto. I mean the optics for coin base are, are not very good, but I think they handled it well. They're the ones who found the guy and they tipped the Justice department who arrested him. It's funny. He confessed asked him to come to like a compliance meeting and he headed for the airport but he got arrested while trying to fly to India. So you know, this guy is, is, it's, it's not gonna end well for him. Um but yeah, no, I mean this is just kind of the world that we live in and you can also see Coinbase is stock didn't really get hit by this. So I mean, well the optics are ugly. I don't think it's going to matter that much unless more of these cases come up. Oh, I'm sure coin base to its own end does need to cooperate in this lawsuit, Jeff. So we don't want to speculate to see if anything else might come forward. But is coin based out of the woods here? Or do you think that this could potentially be um, take a hit to coin bay shares in the future? I don't think so. I mean, I think this is just a rogue product manager. The more interesting part you alluded to it at the top of the show is the SCC trying to get involved in this. I mean, the, you know, the Justice Department that's like the FBI and guys like that, that's criminal stuff. Sec is civil stuff. They filed a suit and people in the crypto world were paying attention because the sec said nine of these were um, we're security. So they're trading securities, which is sec jurisdiction, um, you know, illegally. However, everyone's like, wait a minute, why? How do we know these are securities? You can't just kind of go because this is the big question of the industry and has been for years. And the sec refuses to tell anyone how you tell what's what, So I think the industry and coin base is pushing back a lot on this because of course, the sec is Chairman Gary Gansler is a very ambitious person who has driven the crypto industry crazy because he just wants to sort of say, okay, watch out. I'm gonna get you obey the rules, but then he won't tell me what the rules are. So I think people legitimately. So let me, let me clarify that, right? Let's talk about this here because we had heard the expectation was that the sec would be coming forward with regulation on the Cryptocurrency space perhaps sometime this year, at least during Gensler's own term. But then we had learned roughly a month ago that now it might be the CFTC right that oversees these and they wouldn't be classified as securities, they'd be classified more as commodities. So how is the sec able to get involved in this case? Is it because Coinbase is a publicly traded company versus for instance, if this rogue trader was working someplace else? Yeah, I mean, I'm so surprised you involved at all, because the Justice Department's got this one, but this seems to be kind of a power play by Gansler to try to like shove him to insert himself in there because right now it's kind of a jump ball between the Cftc and sec over who's gonna get it and time is not against her side because republicans are likely going to take Congress, um, come come january and they're long, they're not very well disposed towards Gansler's. So at that point, momentum to give us the Cftc could happen. And of course, the industry is pushing for that because that's gonna, they think they're gonna do better under that, I'm not saying it should be one or the other, but that's sort of a mess right now. So against it is just as usual I think being a little bit sneaky by using this lawsuit as kind of a backdoor to try pronouncing security. I mean and that the judge will produce something with it but of course the big case is ripple who's X. R. P. Thing is the subject of a major hearing that's probably going to take the question first. So I think this is just against her being gansler and trying to get attention and fly the sec flag. Do you think that there is confidence in the crypto market that remains Jeff has a lot of that been eroded. I mean the price of Bitcoin and other major Cryptocurrency is still pretty depressed. Um well I mean of course people have a right to you know be disenchanted because prices are down 70% or more for like the worst coins but you know if you've watched crypto for a long time it's always sort of you know bounces back at the pleasure of interviewing sandbank when freed this week and he sort of suggested he thinks this is the end of it borrowing more macroeconomic shocks. Like if there's a major recession if the NASDAQ crashes 20% right down with it but right now you might have noticed that Bitcoin's floating at like 23 24. Much better than 18 or 19. So it's up about 25% 5% from a month ago That could change. But I mean I think SPF is right in that if this you know, no, no other major shocks. I think the crypto markets are slowly Crawling out of winter. I mean they're not gonna be at $60,000 anytime soon. But for now I think you can cautiously say the worst might be over, but you know, who knows? Another war, another macroeconomic shop like that. All right, Jeff roberts, crypto editor of Fortune magazine and author of Kings of Crypto. Jeff thanks so much for coming on the show.