Nathaniel Chastain is on trial for NFT insider trading allegations
Ex-OpenSea product manager Nathaniel Chastain will face trial for insider trading in non-fungible tokens (NFTs).
According to Bloomberg, Chastain is charged with one count each of wire fraud and money laundering. He could be sentenced to up to 20 years in prison for each count if found guilty.
The jury will oversee the first ever NFT insider trading case this week. In June 2022, Chastain was arrested following allegations from the community that he had used confidential information from OpenSea for personal gain.
At OpenSea, Chastain’s role involved choosing which NFTs to display on the home page. After the listings, the collection’s price will usually increase significantly. The community accused Chastain would buy NFTs before listings and would then sell them through secret wallets.
300 lawyers support Nathaniel Chastain
Over 300 defense attorneys supported Chastain, citing that “confidential business information being property would effect a stunning expansion of federal fraud and criminalize a wide range of conduct that has never before been considered criminal.”
Chastain’s lawyers argue that the preliminary pre-IPO information was not OpenSea’s property and had no intrinsic value to the company. They also claim that employees were not prohibited from trading NFT collections until Chastain’s last day.
In a filing, Chastain’s legal team wrote: “The new policy tends to show that OpenSea did not consider – or treat – the relevant information as confidential.”
Set a precedent?
US prosecutors say Chastain made $57,000 by trading NFTs based on insider information. However, instead of avoiding discussing whether NFTs are securities, they accused him of wire fraud.
Philip Moustakis, a former enforcement attorney for the Securities and Exchange Commission (SEC) and partner at Seward & Kissel LLP, told Reuters that this case could have broader implications for assets that do not fit into existing regulations that prevent investment advisers, brokers and others from trading . on material non-public information.
He added, “If this case stands, it sets precedent that insider trading theory can be applied to any asset class.”
Similarly, former Coinbase product manager Ishan Wahi pleaded guilty to record fraud and money laundering in February. He was accused of insider trading for buying several cryptocurrencies before Coinbase listings.
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