Ex-OpenSea boss calls for ‘insider trading’ NFT charges to be rejected – because NFTs are not securities or commodities

The case centers on allegations that Chastain bought NFTs based on his role in choosing which ones would appear on OpenSeas’ website – and then sold them for up to five times their price. After Twitter pundits called out suspicious transactions linked to Chastain, OpenSea launched an investigation and Chastain resigned.

The former OpenSea chief product officer was charged with one count of wire fraud and one count of money laundering, each carrying a maximum sentence of 20 years in prison, according to a DOJ news release in June.

Although the DOJ’s June press release labeled the charges as insider trading, David B. Hoppe, managing partner and founder of blockchain-focused Gamma Law, told Fortune in June that the case is different from other cases of insider trading. Rather than focusing on publicly traded securities, as is common for insider trading, the charges against Chastain focus on an alleged misuse of company information, which the DOJ says violated his duties to his employer.

Chastain’s lawyers argue in the motion filed Friday that insider trading charges against Chastain should be dropped in part because NFTs don’t fit the bill of being securities or commodities — a point the government conceded, according to the motion. That designation is an essential element of an insider trading charge, based on the Carpenter wire fraud theory, which stems from the 1987 case Carpenter v. United States, Chastain’s lawyers said in the motion.

The attorneys added that specifically, the wire fraud charge should also be dropped because, under recent Supreme Court precedent, the definition of “property” in a wire fraud case must be something that can be sold or distributed by the owner. , according to the proposal. Chastain’s lawyers argue that his decisions about which NFTs to appear on the cover of OpenSea have no discernible financial value and are based on Chastain’s thoughts.

“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 fraud statutes, criminalize ongoing civil employment disputes, and sow uncertainty in the public’s perception of the statute’s limitations,” Chastain’s lawyers wrote in the submission.

Because the transactions took place on the Ethereum blockchain, which is public and searchable, Chastain’s lawyers also argue that any transactions he made cannot be charged as covert money laundering.

“As alleged in the indictment, the defendant did no more than move money in an obvious and noticeable manner,” the motion states. “However, the simple and obvious movement of money does not constitute money laundering.”