New York District Court Begins Trial of Former OpenSea Executive
A lawsuit regarding "insider trading" could have a significant impact on the legal classification of Non-Fungible Tokens.
On April 24, the Southern District Court for the State of New York began the first round of jury hearings in the case of Nathaniel Chastain, former product manager for OpenSea, one of the largest NFT marketplaces in the world. Chastain is accused of insider trading in the NFT market.
The charges were filed last May 31, by the U.S. Attorney's Office in Manhattan. Chastain faces charges on two counts of the indictment; namely, fraud and money laundering. Regarding the first count, Chastain is alleged to have used inside information to secretly purchase 45 NFTs just before they were launched on the market, then selling them at a large profit.
The indictment alleges several instances of misconduct, one of which is the case of the "The Brawl 2" NFTs. Four NFTs from that collection were allegedly purchased by Chastain in August 2021 using anonymous accounts, just minutes before they were officially listed on the OpenSea marketplace, with the understanding that he would sell them for a 100% profit within hours.
Chastain's attorneys filed a motion in October 2022 to remove references to insider trading from his indictment. However, the motion was denied. According to Chastain, the term "insider trading," which was used to describe the alleged acts, is "inflammatory," as it is only used in the case of securities, which NFTs are not. Prosecutors say the charge of "insider trading" can be used to refer to multiple types of fraud in which someone uses nonpublic information to trade assets.
Since the term "insider trading" has never been used in the context of cryptocurrencies or NFTs before, the outcome of this case, which will last for several weeks, may have a significant impact on the future legal classification of NFTs.
Alma Angotti, a former Securities and Exchange Commission (SEC) attorney, predicted back in 2022 that NFTs could be considered securities in this case because they can be labeled as such under the Howey test. Similar concerns were recently expressed by another former SEC employee, Philip Moustakis, who told Reuters:
"If this case stands, it will set a precedent that the insider trading theory can be applied to any asset class."
In a similar lawsuit recently, crypto exchange Coinbase supported a motion to dismiss a lawsuit against the brother of a former platform product manager, who was also alleged to have used inside information to trade cryptocurrencies. According to Coinbase, the SEC did not have jurisdiction to sue this person because the tokens traded did not pass the Howey test.
Therefore, if the court finds Nathaniel Chastain guilty in this case, it is only a matter of time before NFTs and cryptocurrencies are classified as securities, and subject to SEC rules.
Source: cointelegraph.com
analyst opinion
Eduardo Castro
On April 24, the Southern District Court for the State of New York began the first round of jury hearings in the case of Nathaniel Chastain, former product manager for OpenSea, one of the largest NFT marketplaces in the world. Chastain is accused of insider trading in the NFT market.
The charges were filed last May 31, by the U.S. Attorney's Office in Manhattan. Chastain faces charges on two counts of the indictment; namely, fraud and money laundering. Regarding the first count, Chastain is alleged to have used inside information to secretly purchase 45 NFTs just before they were launched on the market, then selling them at a large profit.
The indictment alleges several instances of misconduct, one of which is the case of the "The Brawl 2" NFTs. Four NFTs from that collection were allegedly purchased by Chastain in August 2021 using anonymous accounts, just minutes before they were officially listed on the OpenSea marketplace, with the understanding that he would sell them for a 100% profit within hours.
Chastain's attorneys filed a motion in October 2022 to remove references to insider trading from his indictment. However, the motion was denied. According to Chastain, the term "insider trading," which was used to describe the alleged acts, is "inflammatory," as it is only used in the case of securities, which NFTs are not. Prosecutors say the charge of "insider trading" can be used to refer to multiple types of fraud in which someone uses nonpublic information to trade assets.
Since the term "insider trading" has never been used in the context of cryptocurrencies or NFTs before, the outcome of this case, which will last for several weeks, may have a significant impact on the future legal classification of NFTs.
Alma Angotti, a former Securities and Exchange Commission (SEC) attorney, predicted back in 2022 that NFTs could be considered securities in this case because they can be labeled as such under the Howey test. Similar concerns were recently expressed by another former SEC employee, Philip Moustakis, who told Reuters:
"If this case stands, it will set a precedent that the insider trading theory can be applied to any asset class."
In a similar lawsuit recently, crypto exchange Coinbase supported a motion to dismiss a lawsuit against the brother of a former platform product manager, who was also alleged to have used inside information to trade cryptocurrencies. According to Coinbase, the SEC did not have jurisdiction to sue this person because the tokens traded did not pass the Howey test.
Therefore, if the court finds Nathaniel Chastain guilty in this case, it is only a matter of time before NFTs and cryptocurrencies are classified as securities, and subject to SEC rules.
Source: cointelegraph.com
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