74 US lawmakers violated insider trading laws but will not face charges

U.S. regulators have been complicit as belligerent lawmakers allegedly violated a law aimed at preventing insider trading and conflicts of interest. Some 74 members of Congress will likely be unscathed after buying and selling millions of dollars worth of stocks they didn’t report.

It comes as the U.S. Securities and Exchange Commission (SEC), which oversees market manipulation issues, has cracked down on similar crypto violations. The sector has always maintained a cynical detachment from any form of central control.

Insider trading issues in crypto may have been escalating for some time. But its characteristic distrust of centralized oversight may be vindicated after this apparent selective enforcement by the securities regulator, observers say.

“Due to the lack of regulation, various dubious and manipulative market practices have gained traction, such as pump-and-dump schemes,” Soham Panchamiya, a partner at crypto law firm Reed Smith, told Reuters. BeInCrypto.

“At the end of the day, these types of efforts have always existed historically – we saw it in the stock market for many years until regulation clamped down on the worst,” he added.

Capitol building

74 legislators fail to report their financial transactions

On Thursday, Business Insider published a list of 74 members of Congress who it said did not “properly report their financial transactions.” A 2012 law called the “Stop Trading on Congressional Knowledge Act” requires them to do so within 45 days of trades.

Also known as the STOCK Act, the US Congress passed the law in order to prevent “insider trading and conflicts of interest” issues among its own members. He also wanted to “force lawmakers to be more transparent about their personal financial dealings.”

Lawmakers are required to promptly disclose to the public “any stock trade made by themselves, a spouse, or a dependent child.”

“But many members of Congress did not fully comply with the law,” the report said. “They offer excuses including ignorance of the law, clerical errors and an accountant’s errors.”

Among the lawmakers identified are Pat Fallon, a Republican from Texas. Fallon failed to disclose more than 93 stock trades worth $17.53 million in time. He was up to four months late. The transactions took place during the first half of 2021.

Bitcoin supporter Senator Cynthia Lummis was several days late to report a $100,000 purchase of the cryptocurrency in August. The Wyoming Republican said the more than 45-day delay was due to a “filing error.”

Representative Susie Lee, a Democrat from Nevada, allegedly failed to properly disclose more than 200 stock trades between early 2020 and mid-2021. The deals are worth up to $3.3 million. Lee and her husband also traded eight stocks in 2021 which weren’t reported until August 13, 2022.

Why Members of Congress Shouldn’t Trade Stocks

US lawmakers continued to buy and sell individual stocks with few limitations. This is despite the influence they wield as legislators who govern corporate activity. And also the unfettered access they have to information that may not be publicly available.

Between 2019 and 2021, approximately 183 current Senators or Representatives reported their transactions in stocks or other financial assets. Either by themselves or by an immediate family member, according to a New York Times investigation.

However, 97 of them “served on congressional committees that potentially gave them insight into companies whose stock they said they bought or sold,” he said. For example, Senator Tommy Tuberville is a Republican from Alabama.

He is also a member of the Agriculture Committee. Beginning last year, Tuberville frequently said he negotiated “livestock price contracts.” This was at a time when the committee, by the senator’s own admission, was “talking about cattle markets.”

Rep. Bob Gibbs, a Republican from Ohio on the House Oversight Committee, said he bought shares in pharmaceutical company AbbVie in 2020 and 2021. It happened “while the committee was investigating AbbVie and five rivals on high drug prices,” the newspaper said.

The examples show a failure in ethical conduct, conflicts of interest and the risk of insider trading by sitting legislators. Insider trading is illegal. The practice gives an edge in stock trading due to their privileged access to confidential information.

Double standards: the crypto regulatory dilemma

So what happens to lawmakers who flout insider trading laws?

Not much really. In the example of the 74 members of Congress who failed to report a transaction in violation of the STOCK Act in time, they will most likely be fined. However, the penalty is usually a paltry sum of just $200 as a standard fee, Business Insider reported.

Sometimes it is simply “overridden by House or Senate ethics officers.” While lawmakers get away easily with insider trading, crypto investors cannot say the same. The SEC is cracking down on the industry in actions that pose as a double standard of morality.

In July, the SEC and the US Department of Justice (DOJ) filed civil and criminal charges against Ishan Wahi, a former chief product officer at crypto exchange Coinbase Global. This was the SEC’s first insider trading charge involving a cryptocurrency.

Wahi was charged along with his brother Nikhil and an associate, Sameer Ramani. Ishan Wahi reportedly shared with his brother and friend “confidential information” about the crypto assets that Coinbase was about to list on its exchange.

Nikhil Wahi and Ramani reportedly made a profit of over $1.1 million buying and selling 25 Ethereum-based cryptocurrencies before Coinbase announced their listing. This happened on at least 14 occasions between June 2021 and April 2022, according to the charges.

Nikhil Wani pleaded guilty to a wire fraud conspiracy charge in September. He is expected to be sentenced in December. His brother, Ishan, has pleaded not guilty and is due in court on March 22, 2023. Ramani remains at large.

“Insider trading in the crypto/Web3 industry has been on the rise for quite some time,” Soham Panchamiya, the partner at law firm Reed Smith, told BeInCrypto.

“Between various scandals (OpenSea, Coinbase), the lack of regulation in the industry has allowed some bad actors to denigrate the overall market and undermine trust.”

However, it is something that can be “easily controlled”. Continuing, Panchamiya said:

“Countries around the world have begun to seriously implement and incorporate crypto-specific laws and regulations into their national frameworks to protect consumers and weed out bad actors.”

Moral authority

There is only one other charge of insider trading related to cryptocurrency, which is on the record. In June, the DOJ charged Nathaniel Chastain, a former product manager at OpenSea, with “wire fraud and money laundering” related to a scheme to engage in insider trading in NFTs.

Chastain allegedly traded inside information about non-fungible tokens (NFTs) that were to be featured on OpenSea, the largest NFT marketplace. He did so for “personal financial gain,” U.S. Attorney Damian Williams said.

“NFTs may be new, but this type of criminal scheme is not,” he said at the time. “[The] the charges demonstrate this office’s commitment to stamping out insider trading – whether it occurs in the stock market or the blockchain.

The wire fraud and money laundering charges each carry a maximum sentence of 20 years in prison, according to the DOJ. Interestingly, the maximum potential penalties are prescribed by Congress.

These are the same guys who are fined $200 for breaking insider trading laws. Or who simply gets his peers on the ethics committee to drop the sanction? By this standard, US lawmakers have no moral right to project themselves onto crypto as beacons of justice.

They are too tainted to be the ones leading the crusade against insider trading or conflicts of interest in the cryptocurrency industry. From the evidence, there is a clear selective application of the law: one for lawmakers and one for crypto participants.

The congressional intervention alludes to the failure of crypto as a radical alternative to cash or self-regulation. But it does offer a different solution to the issues of financial censorship, state authority, and complicity addressed by Bitcoin and its derivatives.

Blockchain might have its flaws as an alternative to the traditional idea of ​​money and property. But its democratic infrastructure is a good starting point for conscientious progress, especially in the fair application of the law.

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