OpenSea Former Manager Calls for Dismissal of Insider Trading Charges

Lawyers serving Nate Chastain – a former Product Manager at OpenSea – are defending the ex-employee against charges of insider trading. They claim that no insider trading could have been possible in Chastain’s case because NFTs are neither securities nor commodities.

Chastain Stands His Ground

In a recent filing, the lawyers called for the dismissal of government charges against Chastain.  

“The government’s arguments are contrary to years of settled precedent and are a transparent effort to plant a flag in the blockchain industry,” they stated. 

OpenSea fired Chastian in September for allegedly trading around insider knowledge of what NFTs would be listed on the platform. OpenSea is the world’s largest NFT marketplace, so collections listed on the site are likely to experience demand sites upon listing. 

Months later, the DOJ and FBI charged and arrested Chastain for wire fraud, money laundering, and insider trading. However, Chastian’s lawyers maintain that, in legal terms, none of that ever took place. 

Though Chastain admits to having used insider knowledge to trade NFTs, his lawyers claim it doesn’t amount to “insider trading” if NFTs are neither securities nor commodities. As such, his trading technically lacked any connection to the financial markets and therefore didn’t harm the financial markets.

They claim the wire fraud charge must also be dismissed. The misappropriated information by Chastain – being OpenSea’s selection of NFTs –  is not legally OpenSea’s “property.” If applied in this case, the lawyers argue that the definition of property would become “impermissibly vague

Money Laundering?

Finally, the money laundering charge is deemed unable to “stand in the absence of the wire fraud count.” At the same time, the government cannot prove that Chastain tried to conceal his transactions as they took place over a public blockchain. 

When conducting his trading, Chastain initially purchased his NFTs using distinct wallet addresses. Ethereum blockchain transactions are fully transparent, but addresses are pseudonymous until linked to someone’s identity from an external source. 

The ex-employee later sold those NFTs for two to five times the amount he paid for them. However, he transferred his proceeds back to his publicly-identified blockchain address, allowing authorities to identify him. 

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The filing alleges that the government’s money laundering charge would technically criminalize the mere movement of money from one personal address to another. 

Allowing the government to proceed on this money laundering theory would open the metaphorical floodgates and allow the government to criminalize virtually all money movement going forward, it states.

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