Nate Chastain, a former employee of OpenSea who was accused of an insider NFT trading scheme, was unable to persuade a judge to throw out his indictment. This means that the case will go forward as planned.
In June, the Department of Justice (DOJ) charged Chastain with wire fraud and money laundering for a series of trades that happened while he was OpenSea’s head of product from January to September 2021.
Authorities mention that Chastain utilised confidential information about which NFTs would be featured on OpenSea’s homepage to buy dozens of tokens just before they were shown.
The DOJ says that Chastain then made money by selling these NFTs while hiding his moves with anonymous digital wallets and accounts on OpenSea. Based on what is known about his wallets, it is said that he made at least 19 ETH ($25,500 at current prices) through the trades.
In September 2021, Chastain left OpenSea after being charged with stealing confidential information. Several NFT traders alerted Twitter users at the time that Chastain’s wallet was frequently at the core of NFT transactions that appeared on OpenSea’s featured site.
According to Reuters, he was charged with using insider trading to covertly purchase 45 NFTs on 11 separate occasions. In one such instance, on September 14, 2021, his purchase and sale of the NFT “Spectrum of a Ramification Theory” more than doubled his gains on that specific trade.
Chastain’s attorney argued that the existence of trading in securities or commodities is a necessary component of any insider trading offense in an effort to get the charges dropped. And they argued that NFTs are none of those. But the judge in the case is not persuaded by this dispute.
Additionally, the attorneys said that because the alleged cryptocurrency transactions made by Chastain were recorded on the Ethereum blockchain and thus “fully visible to the public,” the government cannot prove accusations of money laundering.
Judge Jesse Furman denied the motion to dismiss on October 21, stating that Chastain isn’t accused of insider trading in the “classic sense of the term.”
He is accused of wire fraud, which is defined as “obtaining money or property by means of false or fraudulent pretenses” and does not mention stocks or commodities at all. The judge concluded that his argument is “wholly without merit.”
Furman used an example from a different case to show that Chastain’s lawyer hadn’t made a strong case. In that case, a Wall Street Journal reporter made a deal with traders to tell them when a column would come out and what it would be about so they could use it to make money.
“The columnist and traders were charged with, and convicted of, both securities fraud and mail and wire fraud,” the judge said. They had argued that the convictions should be overturned because the information at issue was not “property.” Still, the court said that the schedule and content of the newspaper column were property under the wire fraud law.
“No court has suggested, let alone held, that conviction in such a case requires trading in securities or commodities,” the judge said.
The judge did say that the term “insider trading” might be misleading in Chastain’s case. He said that taking that phrase out of the indictment would be the right thing to do. This would also make it hard for the government to use it in court.
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