The first jury hearing on the case against former OpenSea product manager Nathaniel Chastain, who is accused of insider trading with nonfungible tokens (NFTs), took place on April 24 in the Southern district court of New York.
On May 31, 2022, the allegations were made public by the Manhattan Attorney’s Office of the United States. There are two charges against Chastain: wire fraud and money laundering. On the main count, the previous worker of the biggest NFT market probably utilized his insider information to covertly purchase 45 NFTs in practically no time before their leaning to sell them with a benefit quickly subsequently.
The documenting refers to a few instances of wrongdoing, like the case with NFT “The Fight 2.” Chastain allegedly bought four of them “minutes before” they were featured on OpenSea in August 2021, according to anonymous accounts, and sold them for 100 percent profit within hours.
A motion by Chastain’s attorneys to remove references to “insider trading” from his charges was unsuccessfully filed in October 2022. Chastain argued that since “insider trading” only applies to securities and not NFTs, using the term “insider trading” to describe his alleged actions is “inflammatory.” As the term “insider trading” had not previously been used in reference to cryptocurrencies or NFTs prior to Chastain’s charges, the outcome of the trial, which is anticipated to last several weeks, may have a significant impact on the legal classification of NFTs. Prosecutors responded by noting that the allegation of “insider trading” can be used to refer to multiple types of fraud in which someone with non-public knowledge uses it to trade assets.
Alma Angotti, a former attorney for the U.S. Securities and Exchange Commission, predicted in 2022 that the case might result in NFTs being classified as securities because they could be considered one under the Howey test.
Philip Moustakis, another former employee of the SEC, expressed a similar concern in a recent commentary to Reuters:
Coinbase, a cryptocurrency exchange, supported a motion to dismiss a case involving insider trading against the brother of the platform’s former product manager, who is accused of trading cryptocurrencies with insider knowledge.
Due to the fact that the disputed tokens do not meet the Howey test, Coinbase contends that the SEC lacked the authority to bring a lawsuit.