OpenSea Ex-Employee Asks Court to Dismiss Insider Trading Case

Lawyers for a former OpenSea employee accused of insider trading filed a motion to dismiss related charges last week, arguing the assets don’t constitute securities or commodities.

Nate Chastain, who served as an OpenSea product manager between January and September 2021, was indicted by the Department of Justice (DoJ) in June on two charges of wire fraud and money laundering based on insider NFT trading.

It’s the first time the DoJ has brought such charges against an individual involving NFTs, the department wrote in a statement at the time. 

Each charge of money laundering and wire fraud carries a maximum penalty of 20 years, meaning Chastain is technically staring down a maximum sentence of 40 years imprisonment.

Chastain’s lawyers filed their motion in the US Southern District Court of New York last week claiming the government brought forward charges using “ill-founded applications” of criminal law to establish a precedent.

Specifically, the DoJ alleges Chastain used confidential company information to trade NFTs before they were featured on OpenSea’s homepage for “two to five times profit,” between June and September last year.

Chastain is believed to have generated at least 19 ETH ($30,000) through such trades, It’s been estimated based on Chastain’s known wallets. His alleged dealings were first discovered by a Twitter user last September, roughly nine months before the DoJ laid charges.

“The rub, however, is that the NFTs are neither securities nor commodities,” the lawyer wrote in their motion.

Any insider trading theory, even under case law, requires trading in securities and commodities, they wrote, while pointing out what they see as the US government’s “flawed understanding” of the circumstances.

Without that connection to financial markets, insider trading “in any form or context” cannot exist, the lawyers argue. 

For what it’s worth, lawyers representing Ishan Wahi, the former Coinbase product manager also charged over alleged insider trading, have based their case on almost exactly the same argument.

Lawyers also claimed Chastain’s insider information had no inherent economic or market value, which they believe should lead to the wire fraud charge being tossed.

On the charges of money laundering against Chastain, the lawyers wrote the transparent nature of the Ethereum blockchain, where the NFTs were traded, meant the transactions were visible to the public and could not be demonstrated as concealing unlawful proceeds.

“The defendant did nothing more than move money in an obvious and perceptible manner, they said. “The simple and manifest movement of money, however, does not constitute money laundering.”

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