Key Takeaways
- Ex-OpenSea Product Manager Nathaniel Chastain argues that “insider trading” is only applicable to securities and not NFTs
- The DOJ trial may have far-reaching implications, as if the case sticks, there is a precedent that insider trading theory can be applied to any asset class
Former OpenSea product manager Nathaniel Chastain faced the first hearing in his trial for insider trading with non-fungible tokens (NFTs) on April 24, 2023. The U.S. Department of Justice filed two grand jury charges against Chastain in May 2022, alleging wire fraud and money laundering.
Prosecutors claimed that Chastain used confidential business information to purchase dozens of NFTs secretly shortly before they were featured on OpenSea’s homepage, allowing him to make a profit. Chastain is facing accusations of initiating transactions involving ill-gotten gains in an attempt to conceal the funds.
The defense unsuccessfully attempted to have the insider trading references removed from Chastain’s charges in October 2022. Chastain claims that “insider trading” is only applicable to securities and not NFTs, while prosecutors are of the opinion that insider trading can refer to multiple types of fraud in which someone with non-public knowledge trades assets.
If Chastain is found guilty, the case may see NFTs labeled as securities, as they could be considered one under the Howey test. Several examples of Chastain’s alleged misconduct were cited, including the purchase of four NFTs titled “The Brawl 2” minutes before they were featured on OpenSea, selling them within hours for a profit.
The NFT Insider Trading case grabbed the crypto industry’s attention in July 2022 when US prosecutors charged Nathaniel Chastain, 31, of Manhattan, accusing him of secretly buying 45 NFTs on 11 separate occasions based on confidential information that the tokens, or others by the same creator, would soon be featured on OpenSea’s home page.
The Insider trading case involving NFTs has garnered significant interest in the industry due to the absence of a legal precedent for establishing such a charge in the context of digital assets. Additionally, there is still no clear definition of which cryptocurrencies and tokens, if any, should be classified as securities, adding to the complexity of the case.
The DOJ trial may have far-reaching implications, as if the case sticks, there is a precedent that insider trading theory can be applied to any asset class, according to former SEC lawyer Philip Moustakis.
