Judge Says DOJ Can Call OpenSea NFT Case ‘Insider Trading’, Sets Trial Date

A trial date has now been set for OpenSea’s former product manager Nathaniel Chastain, who will be indicted on April 24, court documents show.

When the case goes to trial, Chastain will be charged with fraud and money laundering.

In a memo filed yesterday, U.S. District Judge Jesse M. Furman denied a series of motions filed by both sides in the case, saying, “Chastain’s arguments about the use of the term ‘insider trading’ are moot.”

The DOJ has called the case against Chastain the first insider trading scheme involving digital assets. However, a question of insider trading precedent remains as the assets in question are neither defined as securities nor commodities, Chastain’s lawyers have argued.

Charges were first brought against Chastain in October 2022 when he was indicted in connection with alleged illegal profits from NFT sales in 2021. Prosecutors said Chastain used inside knowledge of which NFTs would appear on the front of OpenSea to buy NFTs before they were featured and sell them for a profit when they are featured on the site.

The judge granted the government’s motion to exclude witnesses’ opinions on the case. Another motion was also granted to exclude arguments that OpenSea suffered no harm, with the caveat that expert testimony “could open the door to evidence about the effects (or lack thereof) of Chastain’s conduct,” Furman wrote in the memo.

The court may also end up hearing from Chastain directly about how he believes his actions affected his former employer. The judge wrote that Chastain may choose to testify about “his beliefs regarding the effects of his conduct at OpenSea on the theory that such testimony would be evidence of will and intent.”

Furman also ruled that “Chastain may have the right to cross-examine these witnesses about the clarity of the agreement (or lack thereof),” and that the court may decide the matter at trial.

Meanwhile, in another case of insider trading in digital assets, former Coinbase product manager Ishan Wahi pleaded guilty to two counts of conspiracy to commit fraud in February. Wahi’s lawyers made a similar argument, trying to have the Securities and Exchange Commission’s case dismissed on the grounds that there is still no regulatory clarity that the tokens he traded are securities.

Prosecutors filed charges against Wahi, his brother Nikkhil and another, Sameer Ramani, as the SEC simultaneously brought civil charges against the trio for allegedly violating securities laws.