This week, U.S. authorities will try a former employee of OpenSea, the world’s largest NFT platform, for insider trading.
Last year, the Manhattan U.S. Attorney’s office charged former OpenSea product manager Nathaniel Chastain with several high-profile digital asset crimes. The first criminal insider trading case using such assets.
Chastain is accused of covertly buying hundreds of NFTs based on privileged knowledge that OpenSea’s home page will soon include the tokens or others from the same producers.
They said Chastain selected NFTs to showcase and then unlawfully sold his tokens.
“He abused that position of trust,” prosecutors wrote on April 4.
He’s charged with wire fraud and money laundering. Manhattan U.S. District Judge Jesse Furman will preside over his one- to two-week trial.
Chastain’s lawyers claim that his acts were not insider trading and that OpenSea’s knowledge was not his property.
“We are not talking about securities trading,” Chastain’s lawyer David Miller said at a pretrial meeting on Thursday.
He said prosecutors mentioning insider trading “risk undue prejudice and jury confusion.”
Chastain’s attorneys also claim OpenSea didn’t prevent workers from purchasing or selling prominent collections or artists until September 2021, when Chastain left.
In an April 17 filing, Miller claimed its new procedures “tend to show that OpenSea did not consider – or treat – the relevant information to be confidential” while Chastain was there.
Philip Moustakis, a former SEC enforcement lawyer and partner at Seward & Kissel LLP, said the decision might affect assets that do not fall under existing restrictions prohibiting investment advisors, brokers, and others from trading on important nonpublic information.
“Is it insider trading of anything?” Moustakis stated. “If this case sticks, there is precedent that insider trading theory can be applied to any asset class.”
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