Lawyers representing Nathaniel Chastain, the former OpenSea product manager accused of insider trading, claimed that US authorities only brought the charges in an effort to set a legal precedent that non-perishable tokens (NFTs) are securities.
In filing Friday in New York’s Southern District Court, Chastain’s legal team of Greenberg Traurig filed a motion to dismiss the indictment against him, which included allegations of wire fraud and money laundering related to a June-September 2021 NFT insider trading scheme. The former OpenSea employee was partially void “because the NFTs in question are neither securities nor commodities” and the tokens were not legally considered to be the property of the platform.
“The government immediately filed a lawsuit using improper applications of criminal law to set a precedent in the digital asset space,” Chastain’s legal team said. “While seeking to use this first-of-its-kind trial to force broad assertions about insider trading, property theft and money laundering, the government’s arguments run counter to years of established precedent and are a transparent effort to inculcate science in the blockchain industry.”
Prosecutors charged Chastain with insider trading in June, alleging he used his position and inside information at OpenSea to purchase 45 NFTs before they were scheduled to be offered on the marketplace website. He allegedly used anonymous hot wallets and accounts, and later sold NFTs for a profit. Not writing about Chastain by name, the co-founder and CEO of OpenSea confirmed some of the allegations in a blog post in September 2021, stating that the employee had quit.
Cointelegraph reported in June that former SEC attorney Alma Angotti said the case could open doors for NFTs to be classified as securities. Chastain was one of the first individuals to be charged in the United States in a case involving insider trading of NFTs in the crypto space.
Related: The Securities and Exchange Commission Investigates the NFT Market for Possible Securities Violations: Reports
If Chastain’s legal team reaches an agreement with the prosecutors or loses the case, it could encourage the SEC to expand its regulatory and enforcement powers over certain cryptocurrencies. The Securities and Exchange Commission (SEC) took a similar step to classify nine crypto assets as securities in an insider trading case against former Coinbase product manager Ishan Wahi and his brother and partner.
