Lawyers for former OpenSea product manager Nate Chastain have filed a motion to dismiss the insider trading charges against the ousted NFT marketplace employee. Filed Friday, the motion argues that NFTs are not securities or commodities—so no insider trading could have taken place.
The Department of Justice and FBI in June arrested and charged Chastain with wire fraud and money laundering for alleged trades he made using insider knowledge of which NFT collections were going to be featured on OpenSea.
Friday’s filing says: “As alleged, acting with purported criminal intent, Mr. Chastain exploited his advance knowledge of which NFTs would be featured on OpenSea’s homepage by purchasing certain NFTs before they were featured and selling them at a profit after they were featured.
“The rub, however, is that the NFTs are neither securities nor commodities.”
Chastain’s case was the first ever digital asset insider trading scheme, according to the DOJ. Insider trading is using confidential information to one’s benefit in order to make lucrative trades.
Chastain allegedly used information only an employee would have in order to know which NFTs would be listed so he could sell them for “two- to five-times his initial purchase price,” according to the charges.
He also used anonymous accounts and crypto wallets to conceal the transactions, investigators claimed.
Each of the charges against Chastain carries a maximum sentence of 20 years in prison.
So are NFTs securities—in the same way that regulators say tokens sold in ICOs can be?
“It’s almost impossible to say carte blanche that NFTs are not securities,” Yitzy Hammer, a lawyer with Tel Aviv-based blockchain legal advisory firm, DLT LAW, said.
He added that “NFTs (pieces of code on a blockchain, linking to an underlying asset) in and of themselves are not securities”—but that in some cases, looking at the full picture of what and how they were marketed to prospective buyers, could affect their classification, rendering their sale an unregistered securities offering.