Unchained: DEX in the City

Episode 962: Insider Trading and Crypto – What the Law Actually Says

Date: November 26, 2025
Host: Katherine Kirkpatrick (KK or KKB), with Jesse Brooks & V. Lee
Theme: Examining the legal definitions, history, and real-world application of insider trading laws—especially as they impact and evolve within the crypto industry.

Episode Overview

This episode features a lively roundtable of three experienced lawyers—each with backgrounds in traditional finance, the SEC, and DOJ—dissecting what "insider trading" means in both the traditional securities world and the wild west of crypto. They explore legal definitions, notable cases (including Martha Stewart, Coinbase, and OpenSea), blockchain transparency, and regulatory struggles to keep pace with decentralized tools. The trio blends legal expertise with candid commentary, offering ethics, policy, and practical guidance for the crypto-curious.

Key Discussion Points

1. What Is Insider Trading? ([01:46–06:56])

• Definition: Trading securities based on material, non-public information (MNPI)—i.e., information that a typical, reasonable investor would consider relevant but doesn't yet have access to.
  • Quote: "Insider trading is trading in securities while in possession of something called material non-public information, or mnpi." – V., [05:24]
• Fairness Principle: Main U.S. markets are built on the principle that no individual should gain an unfair edge using secret, trusted corporate information.

2. Legal Theories: Classical vs. Misappropriation ([06:57–10:59])

• Classical Theory: The "Wall Street" model—an insider (like a CEO) trades their own stock using privileged info (e.g., FDA approval coming soon).
  • Quote: "This is just like classic, classic Wall Street version, right?" – V., [07:08]
• Misappropriation Theory: Not just insiders—anyone who betrays a relationship of trust for trading advantage (e.g., lawyer leaks M&A details to a friend).
  • Boundary Example: Accidentally overhearing MNPI (e.g., on an elevator) generally doesn't create legal liability because there's no duty breached.

3. Crypto Complications: Applying Traditional Law to a New Asset Class ([10:59–13:09])

• No Clear Statute: Insider trading law is built from judicial precedent, not explicit statutes—mirroring crypto's evolving regulatory patchwork.
• Ambiguities: Even practicing lawyers disagree on boundaries—which fragments enforcement and understanding.
  • Quote: "It's certainly not clear cut. Another parallel to crypto is like, there's not necessarily like crystal clear lines of what is insider trading..." – KK, [10:59]

4. Notable Cases in Crypto: Coinbase ("Wahee") and OpenSea ("Chastain") ([13:09–19:18])

• DOJ’s “Wire Fraud” Catch-All: Without specific insider trading statutes for non-securities (like NFTs), DOJ leans heavily on wire fraud to prosecute bad actors.
  • Quote: "These days, pretty much any fraud is wire fraud. Because if you're online... it's wire fraud." – Jesse, [13:19]
• Case #1 (“Wahee”):
  • Coinbase employee leaks asset listing info to brother/friend; caught by blockchain sleuths and prosecuted for both securities fraud (SEC) and wire fraud (DOJ). Pleads guilty, sentenced.
  • Memorable Moment: Joking about Matt Levine’s “emoji” analyses and misadventures. ([14:57])
• Case #2 (“Chastain” at OpenSea):
  • Employee buys NFTs just before they're featured; prosecuted for wire fraud, but conviction overturned. The court ruled OpenSea's listing plans were not definitively “property,” complicating prosecution.
• Broader Implications: In crypto, duties and insiders are fuzzier: "If everybody and nobody owes a duty, like, where is the information here? And what's mmpi?" – Jesse, [17:43]

5. Public Sleuthing on the Blockchain ([19:18–21:34])

• Crypto Twitter’s Role: Blockchain transparency enables outsiders to detect patterns and “whistleblow” on possible insider trading. Sometimes correct, sometimes not.
  • Quote: "The sleuthing on crypto Twitter is just impressive at times… monitoring on chain activity and sussing out inappropriate or sketchy behavior is actually very cool." – KK, [21:34]

6. Front Running vs. Insider Trading ([21:34–24:13])

• Relationship: Both are forms of market manipulation, but front running is acting on advance knowledge of client orders; insider trading involves MNPI. In crypto, ultra-transparency + speed challenge enforcement.
  • Quote: "I think of them as cousins. Like they are both in the broader bucket of what is called market manipulation." – KK, [21:34]

7. Future Challenges: Transparency, Privacy, and Automated Actors ([24:13–26:59])

• MEV, Bots, and AI: Tools can extract microsecond trading edge; legal/ethical questions about robots’ duty, and whether law or market design should address the imbalance.
  • Quote: "Now, does that meet a legal standard of market manipulation? TBD. But it is problematic from a societal viewpoint and that retail is being disadvantaged vis a vis entities that have this access to technology." – KK, [25:21]
• Congress and Regulator Ethics: Ironies abound—lawmakers can trade stocks they help regulate, while federal crypto regulators can’t hold any crypto at all.
  • Quote: "Members of Congress can not only own stocks, there are no specific, like insider trading, like, restrictions on it. So that like, makes no sense." – V., [28:50]

8. Tech Rules vs. Ethics: Company Insider Policies in Practice ([32:00–37:42])

• DATs ("Digital Asset Treasury" Cos.): SEC and FINRA are probing these vehicles—especially regarding use of inside info to gain token market advantage.
• Legal vs. Ethical Standards: Even absent strict legality, companies should adopt robust insider trading policies as a matter of business ethics and trust.
  • Quote: "Just because something is theoretically legal, it may not be something you want to engage in as an individual human person, as a crypto market participant or as a company." – KK, [36:41]
• Jesse’s Maxim: “Insider trading has nothing to do with being a douche. It’s just like, whether you have a duty.”

9. Surveillance and Compliance – TradFi vs. Crypto ([37:42–46:46])

• TradFi: Robust rules, monitoring, and pre-clearance for employee trades; both regulators (e.g., FINRA, SEC) and institutions maintain surveillance “apparatus.”
• Crypto: Centralized exchanges may carry over TradFi-style controls, but for decentralized protocols/pure DeFi, there's no comparable surveillance infrastructure. Grey areas abound, especially in hybrid or semi-centralized orgs.
  • Quote: "There should be different rules for centralized entities… versus, for example, infrastructure or technology or even Dexes. So, like, that is the really difficult part about regulating this industry." – KK, [45:25]

10. Decentralization Makes Everything Harder ([46:15–47:55])

• No One-Size-Fits-All: Rules must adapt depending on where a project sits on the decentralization spectrum; "larping" (i.e., roleplaying as DeFi) is rampant and confuses regulatory efforts.
  • Joke: Mullet haircuts and LARPing as metaphors for "hybrid" or poorly defined decentralization.

Notable Quotes & Timestamps

• "Insider trading is trading in securities while in possession of something called material non public information, or mnpi."
  — V., [05:24]

• "[Insider trading law is]...certainly not clear cut. Another parallel to crypto is like, there's not necessarily like crystal clear lines of what is insider trading..."
  — KK, [10:59]

• "These days, pretty much any fraud is wire fraud. Because if you're online... it's wire fraud."
  — Jesse, [13:19]

• "The sleuthing on crypto Twitter is just impressive at times. Like sometimes that sleuthing actually the outcome is false... but other times... sussing out sketchy behavior is actually very cool."
  — KK, [21:34]

• "Just because something is theoretically legal, it may not be something you want to engage in as an individual human person, as a crypto market participant or as a company."
  — KK, [36:41]

• "Insider trading has nothing to do with being a douche. It's just like, whether you have a duty."
  — Jesse, [36:54]

Timestamps for Major Segments

• Defining Insider Trading & its Theories: [01:46–10:59]
• Crypto Cases (Coinbase/Wahee & OpenSea/Chastain): [13:09–19:18]
• Blockchain Whistleblowing & Public Sleuthing: [19:18–21:34]
• Front Running and Market Manipulation: [21:34–24:13]
• Technology, AI, and Market Fairness: [24:13–26:59]
• Ethics Rules for Congress and Regulators: [27:25–30:58]
• DATs and SEC Insider Trading Sweep: [32:00–35:11]
• TradFi vs. Crypto Surveillance/Compliance: [37:42–46:46]

Memorable Moments

• Real talk about hiring "prison consultants" for insider trading convicts ([11:05])
• Jokes about Martha Stewart and prison documentaries ([12:29])
• The running “douche”/“jerk” banter as a metaphor for ethical lines ([36:54–37:42])
• Mullets, Quidditch, and LARPing as metaphors for the blurred lines of crypto decentralization ([47:15–48:12])

Conclusion

Insider trading in crypto is a legal, ethical, and technological tangle.
What’s clear: U.S. law is rooted in principles of trust, fairness, and duty—but these are under stress (and sometimes parody) in the crypto era. Blockchain’s transparency creates new modes of detection but stretches traditional legal ideas past their limit. For now, market actors must rely on a messy blend of compliance, ethics, community vigilance, and evolving precedent.
As always: This episode is not legal advice. The conversation will continue—as will the evolution (and confusion) at the intersection of crypto and the law.