Should Chastain’s legal team reach an agreement with prosecutors or lose the case, it may embolden the SEC to increase its regulatory and enforcement activities on certain cryptocurrencies. In an insider trading case against former Coinbase product manager Ishan Wahi, his brother, and an associate, the SEC designated nine crypto assets as securities.
Lawyers for OpenSea product manager Nathaniel Chastain, who was charged with insider trading, allege that United States authorities pursued the case in an attempt to establish legal precedent that nonfungible tokens are securities.
Chastain’s legal team from Greenberg Traurig filed a motion to dismiss the indictment against him on Friday, which included wire fraud and money laundering charges related to an NFT insider trading scheme from June to September 2021. Because the NFTs at issue are neither securities nor commodities and because the tokens were not considered OpenSea’s property, the lawyers said that the charges against him were invalid.
Chastain’s legal team said that the government has set a bad precedent for digital assets by applying criminal law in an ill-founded manner. The government is seeking to make broad assertions of insider trading, property theft, and money laundering using this first-of-its-kind prosecution, but decades of settled precedent contradict those arguments and are an obvious attempt to establish a foothold in the blockchain industry.
OpenSea co-founder and CEO Devin Finzer confirmed some of the charges in a September 2021 blog post, noting that an employee had quit as a result. Prosecutors alleged that Chastain had purchased 45 NFTs prior to their listing on the site’s website via his position and insider information at OpenSea. He used anonymous hot wallets and accounts, which he later sold for profit.
In June, Cointelegraph reported that Alma Angotti, a former Securities and Exchange Commission lawyer, believed that NFTs might be classified as securities after the case opened the door for this outcome. Chastain was one of the first individuals to be charged in the U.S. for insider trading in connection with NFTs in the crypto space.
There are reports that the SEC is investigating the non-fungible token market for potential securities violations.
The SEC may seek to expand its regulatory and enforcement powers over certain cryptocurrencies if Chastain’s legal team reaches an agreement with prosecutors or loses the case. In an insider trading case against former Coinbase product manager Ishan Wahi, his brother, and an associate, the SEC labelled nine crypto assets as securities.