Ex-OpenSea product manager Nathaniel Chastain will face trial for non-fungible tokens (NFT) insider trading.
According to Bloomberg, Chastain is charged with one count of wire fraud and money laundering each. He might get sentenced to up to 20 years in prison for each count if found guilty.
The jury will oversee the first-ever NFT insider trading trial this week. In June 2022, Chastain was arrested following allegations from the community that he had utilized confidential information from OpenSea to make personal gains.
At OpenSea, Chastain’s role involved selecting which NFTs would appear on the home page. After the listings, usually, the collection’s price would substantially increase. The community accused Chastain would buy the NFTs before listings and would then sell them through secret wallets.
300 Attorneys Support Nathaniel Chastain
Over 300 defense attorneys supported Chastain, citing, “confidential business information is property would effectuate a breathtaking expansion of federal fraud and criminalize a broad swath of conduct never before thought criminal.”
Chastain’s attorneys claim that the preliminary information before the listing was not OpenSea’s property and did not hold inherent value to the company. They also argue that employees weren’t prohibited from trading featured NFT collections before Chastain’s last day.
In a filing, Chastain’s legal team wrote, “Its new policies tend to show that OpenSea did not consider – or treat – the relevant information to be confidential.”
Setting a Precedent?
U.S. government prosecutors say Chastain made $57,000 in profits by trading NFTs based on insider information. However, they charged him with wire fraud instead to avoid debating whether NFTs are security.
Philip Moustakis, a former Securities and Exchange Commission (SEC) enforcement lawyer and partner at Seward & Kissel LLP, told Reuters that this case could have broader implications for assets that do not fit into existing regulations preventing investment advisers, brokers, and others from trading on material nonpublic information.
He added, “If this case sticks, there is precedent that insider trading theory can be applied to any asset class.”
Similarly, former Coinbase product manager Ishan Wahi pleaded guilty to wire fraud and money laundering counts in February. He was accused of insider trading for purchasing several cryptocurrencies before Coinbase listings.
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