Former NFT Marketplace worker faces insider trading charges

A former employee of OpenSea, the world’s largest NFT marketplace, lost a bid to dismiss allegations of insider trading in the first case involving digital assets.

Nathaniel Chastain, a former product manager at OpenSea, was arrested in June on fraud and money laundering charges. He was responsible for selecting NFTs to appear on OpenSea’s website between June and September 2021, according to the government.

While the company kept the information confidential, Chastain secretly bought dozens of NFTs shortly before they were featured and later sold them for two to five times more than he paid, prosecutors said.

Chastain had asked U.S. District Judge Jesse M. Furman to throw out the indictment, saying NFTs are not securities or commodities and therefore not subject to the government’s misappropriation theory under the Wire Fraud Act. He also argued that the information he allegedly took is not “property” as required by the statute, and that prosecutors cannot prove he committed money laundering because all of the transactions at issue were made on the Ethereum blockchain.

Furman said Chastain’s argument that the NFTs are “property” may have some merit because the government may not be able to prove beyond a reasonable doubt that he used confidential business information or that he tried to hide his transactions while conducting them on a public blockchain . .

But the judge rejected Chastain’s claim about the limits of the wire fraud statute, because he is not accused of insider trading “in the classic sense of the term” and is not charged with securities fraud. Citing a Supreme Court case that upheld the wire fraud conviction of a Wall Street Journal columnist found guilty of sharing details of upcoming columns with traders, Furman said the court found the publication and content of the column to be “property” within the meaning of the law .

“No court has suggested, let alone held, that conviction in such a case requires trading in securities or commodities,” Furman said, adding in a footnote that the term “insider trading” may be misleading and that the proper solution may be to strike the sentence from the indictment.

Chastain’s lawyers have already asked Furman to drop “insider trading” from the indictment, saying it “serves no legitimate prosecutorial purpose and is simply a means for the government to increase media attention and inflame the jury in this first-of-its-kind case in the digital asset space.”

David I. Miller, a lawyer for Chastain, declined to comment on Furman’s decision.

The case is United States v. Chastain, 22-cr-305, US District Court, Southern District of New York (Manhattan).