I’ve recently been thinking about what insider trading really is, especially in the crypto world. Many people still get confused about what’s legal and what’s illegal, even though the impacts can be very serious.

So, insider trading basically involves buying or selling stocks based on non-public information. In many countries, this is illegal because it’s considered an unfair advantage. But not all forms are illegal—SEC in the U.S. has strict rules about what’s allowed and what’s not. For example, a CEO buying back their own company’s stock is legal as long as they register properly with the SEC.

What’s scary is illegal insider trading. It’s not just company executives who can be involved. Anyone can—friends, family, even a barber who overhears a secret conversation while cutting the CEO’s hair. If they use that info to trade, it’s clearly a violation, and the SEC can prosecute.

What’s interesting is how insider trading is starting to be applied in crypto. The SEC has already classified some tokens as securities, including XRP, ADA, and SOL. That means insider trading rules now also apply here. I noticed a surge in the SUI token, which jumped 120% in the last month to $2.25 in October—immediately, there were accusations of insider trading. SUI itself denied it on X, but it still makes people skeptical.

The crypto world is really wild. The market is mostly unregulated and unmonitored, making it a fertile ground for shady practices. I often see big whales—usually founders and developers—manipulating the market with large buy or sell orders. Pump and dump schemes are common, where prices rise due to overbuying and fake news, then a group of insiders sell off together at a pre-planned time.

A study from the University of Technology Sydney even estimates that insider trading occurs in 27-48% of crypto listings. That’s a crazy number, even though regulatory oversight is starting to tighten.

If caught engaging in illegal insider trading, the consequences can be severe. In the U.S., it can mean up to 20 years in prison, criminal fines up to $5 million for individuals or $25 million for corporations. Civil fines can be three times the profits gained. Plus, your reputation can be totally destroyed.

I remember the Ishan Wahi case from Coinbase in 2022. He was a former product manager who told his brother and friends about tokens that would be added to the platform. They bought 25 cryptocurrencies and made over $1.1 million in profit. Ishan got 2 years in prison, his brother 10 months, and his friends were fined $1.6 million. That’s a real example of how serious the SEC is.

There’s also the case of Nate Chastain from OpenSea in 2021. He was a head of product who used insider knowledge to buy NFTs he knew would be featured on the homepage. When trading volume increased, he sold and made $57,000. He was sentenced to 3 months in prison plus a $50,000 fine.

Then there’s Long Island Ice Tea, which changed its name to Long Blockchain Corp in 2017. The stock shot up 380% just because of the rebrand. Three people were charged with insider trading, two were found guilty, and they paid a total fine of $400,000.

Gary Gensler, the SEC chair, continues to emphasize that the SEC will aggressively enforce insider trading laws in crypto. As more tokens are classified as securities, oversight becomes stricter. Blockchain isn’t as anonymous as people think—public transparency can actually be used to monitor and prevent insider trading.

The SEC has been tough since the ICO craze of 2017. A report from Solidus Labs states that 56% of listed ICO tokens show evidence of insider trading. Crypto exchanges and companies are now implementing stricter self-regulation, including KYC and AML checks on centralized exchanges. But less regulated DEXs still pose a problem.

As the industry matures, there’s increasing pressure—even on decentralized platforms—to implement stronger protections. So if you’re thinking about trying insider trading in crypto, think again—regulators like the SEC are ready.