Ex-OpenSea CEO’s trial begins in first NFT insider trading case

NEW YORK, April 24 (Reuters) – U.S. prosecutors will this week charge a former employee of OpenSea, the world’s largest marketplace for non-fungible tokens (NFT), with insider trading.

The charges against Nathaniel Chastain, a former product manager at OpenSea, were the first in a series of high-profile cases related to digital assets launched by the Manhattan US Attorney’s office last year. It is considered the first criminal insider trading case involving such assets.

Prosecutors have accused Chastain of secretly buying dozens of NFTs based on confidential information that the tokens, or others from the same creators, would soon appear on OpenSea’s website.

Chastain chose which NFTs to display and then illegally profited by selling his tokens shortly after, they said.

“He abused that position of trust,” prosecutors said in an April 4 filing.

The defendant faces one count of wire fraud and one count of money laundering. His trial before U.S. District Judge Jesse Furman in Manhattan is expected to last one to two weeks.

Chastain’s lawyers have argued that his actions were not insider trading and that the information he accessed was not OpenSea’s property and had no intrinsic value to the company.

“We’re not talking about securities trading,” David Miller, a lawyer for Chastain, said on a conference call Thursday.

He added that if prosecutors cite insider trading, “there is a significant risk of undue prejudice and jury confusion.”

Chastain’s lawyers have also said that OpenSea did not begin banning employees from buying or selling select collections or creators until Chastain’s last day, in September 2021.

Its new policies “tend to show that OpenSea did not consider — or treat — the relevant information to be confidential” while Chastain worked there, Miller said in an April 17 filing.

The case could have broader implications for assets that don’t fit under existing regulations that prevent investment advisers, brokers and others from acting on material non-public information, said Philip Moustakis, a former SEC enforcement attorney and partner at Seward & Kissel LLP.

“Is there insider trading of something?” Moustakis said. “If this case stands, it sets precedent that insider trading theory can be applied to any asset class.”

Reporting by Chris Prentice and Luc Cohen; Editing by Richard Chang

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