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

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

The Department of Justice (DOJ) in June charged Chastain with wire fraud and money laundering over a series of allegedly dodgy trades which occurred during his tenure as OpenSea’s head of product between January and September 2021.

Authorities say Chastain used confidential information regarding which NFTs would be featured on OpenSea’s homepage, leveraging that knowledge to secretly purchase dozens of tokens just before they appeared. 

Chastain subsequently profited by selling those NFTs, while using anonymous digital wallets and accounts on OpenSea to conceal his moves, according to the DOJ. He allegedly 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 misappropriating inside information in September 2021. At the time, a number of NFT traders flagged on Twitter that a wallet belonging to Chastain was routinely at the center of transactions involving NFTs that would show up on OpenSea’s featured portal.

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

Chastain attempted to have the charges dropped, with his counsel arguing that the existence of securities or commodities trading is an essential element of any insider trading offence. And NFTs are neither of those, they contended. But this dispute has failed to convince the case’s judge.

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

Chastain case not exactly ‘insider trading’

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

He is charged with wire fraud that makes no reference to either securities or commodities and instead relates to “obtaining money or property by means of false or fraudulent pretenses.” So, his argument is “wholly without merit,” the judge said.

Furman pointed to another case as a reference point to make clear that Chastain’s counsel hadn’t made a solid argument. In that case, a Wall Street Journal reporter entered into a scheme with traders to share the timing and contents of a column so they could use it to make profits.

“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 reverse the convictions on grounds that the information in question was not “property.” Yet the court ruled that the publication schedule and 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. 

The judge acknowledged, though, that the term “insider trading” may be misleading in Chastain’s case. The appropriate remedy, he said, would be to strike that phrase from the indictment. This would also prevent the government from using it at trial.

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