Former OpenSea Exec’s NFT ‘Insider Trading’ Case Will Continue

Nate Chastain, the former OpenSea employee accused of an NFT insider trading scheme, failed to convince a judge to dismiss his indictment, allowing the case to proceed.

The Department of Justice (DOJ) in June charged Chastain with wire fraud and money laundering over a series of allegedly shady deals that occurred during his tenure as OpenSea’s chief product officer between January and September 2021.

Authorities say Chastain used confidential information about which NFTs would be featured on OpenSea’s website, and leveraged that knowledge to secretly buy dozens of tokens just before they appeared.

Chastain then profited from selling these NFTs, while using anonymous digital wallets and accounts on OpenSea to hide his moves, according to the DOJ. He reportedly generated at least 19 ETH ($25,500, current prices) through the trades, based on information from his known wallets.

Chastain resigned from OpenSea after being suspected of acquiring inside information in September 2021. At the time Number of NFT traders flagged on Twitter that a wallet belonging to Chastain was routinely at the center of transactions involving NFTs that would appear on OpenSea’s featured portal.

Reuters reported that he was accused of secretly buying 45 NFTs on 11 separate occasions as part of an insider trading scheme. In such an event, his purchase and sale of the NFT “Spectrum of a Ramification Theory” on September 14, 2021 more than quadrupled his profit on that trade.

Chastain sought to have the charge dropped, and his attorney argued that the existence of securities or commodity trading is an essential element of any insider trading offense. And NFTs are none of these, they argued. But this dispute has not managed to convince the judge of the case.

The lawyers also argued that the government cannot prove allegations of money laundering, as Chastain’s crypto transactions in question were conducted on the Ethereum blockchain and thus “fully visible to the public.”

The Chastain Case Isn’t Exactly “Insider Trading”

In denying the motion to dismiss on Oct. 21, Judge Jesse Furman said Chastain is not charged with insider trading in the “classic sense of the term.”

He is charged with wire fraud which does not refer to either securities or commodities, and instead relates to “obtaining money or property by means of false or fraudulent pretenses”. So his argument is “entirely without merit,” the judge said.

Furman pointed to another case as a point of reference to make it clear that Chastain’s attorney had not made a solid argument. In that case, a Wall Street Journal reporter made an arrangement with traders to share the timing and content of a column so they could use it to make money.

“The columnist and traders were charged with and convicted of both securities fraud and mail and wire fraud,” the judge said. They had argued to overturn the convictions on the grounds that the information in question was not “property”. Nevertheless, the court ruled that the publication form and the contents of the newspaper column constituted property within the wire-fraud statute.

“No court has suggested, let alone held, that conviction in such a case requires trading in securities or commodities,” the judge said.

However, the judge acknowledged that the term “insider trading” may be misleading in Chastain’s case. The proper remedy, he said, would be to strike that sentence from the indictment. This will also prevent the authorities from using it in the trial.

Get today’s best crypto news and insights delivered to your inbox every night. Subscribe to Blockworks’ free newsletter now.