Nathaniel Chastain, a former OpenSea executive, has submitted a filing calling for the dismissal of charges because he claims NFTs are not securities or commodities, among other reasons.
Former OpenSea executive Nathaniel Chastain has asked for the insider trading charges levied against him to be dismissed, citing the reason that NFTs are not securities or commodities. Chastain submitted a memorandum of law to the United States District Court in the Southern District of New York on August 19.
The filing says that the effort to prosecute Chastain “must fail for multiple independent reasons” before going to state those very reasons. First, it says that NFTs are neither securities nor commodities and says that the government agrees and that the decades of legal developments in the past render the charge of insider trading moot. The filing reads,
“The rub, however, is that the NFTs are neither securities nor commodities. And the government agrees. Thus, we are left with a case of first impression—on multiple fronts. Can the government proceed on a Carpenter wire fraud theory of insider trading in the absence of any allegation involving securities or commodities trading? The government, of course, says yes. The Supreme Court and 40 years of insider trading precedent say no.”
Secondly, it says that the scope of the wire fraud statute to fit the bill of “ethereal and intangible interests” would be an overextension. It also says that the claim of money laundering cannot be applied either, as the government cannot prove any effort to “conceal the unlawful proceeds of a specified unlawful activity.”
Chastain was indicted on the charges of one count of money laundering and one count of wire fraud in June 2022. The indictment alleged that he had attempted to rake in large profits from the NFT market using insider trading. He could face up to 40 years in prison.
The allegations are that Chastain exploited buyer behavior where they would pay a premium for NFTs on the homepage of OpenSea and for NFTs by the same artist whose work appeared on the homepage. It claimed that he would use the knowledge of what would be displayed on the page to purchase NFTs beforehand.
OpenSea said that it would conduct an internal review. It later confirmed that the employee had resigned and that a third-party investigation was taking place.
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