Bid by OpenSea’s ex-employee to have NFT Wire Fraud case dismissed fails
According to a report, the court recently rejected a request by Nathaniel Chastain, a former product manager at OpenSea, to have the charges against him dismissed. Chastain is accused of insider trading — a practice that generated more than $1.7 million in the crypto sector through 2021 — and wire fraud.
The court denies Chastain’s request to dismiss the indictment
Nathaniel Chastain, the former head of product at OpenSea, was accused of insider trading earlier this year. Allegedly, Chastain used her advance knowledge of which NFTs would be placed on the front of the marketplace for personal gain. He would buy the token in advance and sell them after they were posted for a huge profit.
On June 15, 2022, the Department of Justice announced Chastain’s arrest. Two months later, the legal team of OpenSea’s ex-employees filed a motion to dismiss the case. The core of the argument revolved around the notion that the indictment is based on “unjustified application of the criminal law”, due to NFTs.
The court finally answered this Friday. While Presiding Judge Furman found some merit in certain arguments advanced by the motion, he declined to sustain it. The charge of insider trading was removed from the indictment, but the court states that there is a basis for convicting Chastain of wire fraud.
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Chastain’s argument explained
The motion to dismiss the charges against Chastain contained three main arguments. The first argument said that Chastain cannot be accused of insider trading since he was dealing with NFTs and not securities or commodities. They also asked that the insider trading charge be dropped since it “serves no legitimate prosecutorial purpose.”
This point led to the warning that ruling in favor of the prosecution could set a dangerous precedent. The request argues that “allowing the government to expand the scope of the wire fraud statute to reach such ethereal and intangible interests would serve to overextend the already far-reaching wire fraud statutes” Given that regulators have been examining the broader NFT sector through 2022, and have recently began investigating Yuga Labs, the concerns expressed in the document are likely shared by many in the sector.
The latter point was intended to dismiss the charges of wire fraud. The motion argued that the charge could only be brought against property while NFTs were not truly property since they have no definable market value – as defined by the US Supreme Court. Judge Furman strongly disagrees with this argument.
Furman cited the Supreme Court decision in Carpenter v. United States, 484 US 19 (1987). This ruling ended the prosecution of a Wall Street Journal columnist, Robert Foster Winans, who was accused of mail fraud and insider trading. Winans notified a broker of the stocks to appear in upcoming columns.
This case set a precedent for what should be considered “property” in similar cases, and according to Furman, it echoes Chastain’s arguments that NFTs are not property in dispute. In the end, the court suggested that the term “insider trading” be removed from the indictment, but ruled that the case against OpenSea’s former product manager could continue.
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About the author
Tim Fries is the co-founder of The Tokenist. He has a B. Sc. in mechanical engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate in the investment team at RW Baird’s US Private Equity division and is also a co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
