Former OpenSea product manager Nathaniel Chastian was accused of insider trading by the authorities in the US. His lawyers claimed that the charges were merely brought in an attempt to set a legal precedent that nonfungible tokens (NFTs) are securities.
Chastain’s legal team from Greenberg Traurig filed a motion to dismiss the allegation against him on Friday with the Southern District of New York court.
The accusation includes NFT insider trading scheme-related money laundering and wire fraud between June to September 2021.
The defense said that, because “NFTs at issue are neither securities nor commodities”, and that the tokens were not legally regarded as the property of the platform, the charge against Chastain is invalid.
According to the legal team of Chastain, the government brought the immediate prosecution by making erroneous applications of the criminal law in order to establish precedent in the area of digital assets.
“While seeking to use this first-of-its-kind prosecution to posit broad assertions of insider trading, property theft and money laundering, the government’s arguments are contrary to years of settled precedent and are a transparent effort to plant a flag in the blockchain industry”, the team added.
In June, prosecutors charged Chastain for allegedly exploiting his role and knowledge of OpenSea’s insider information to buy 45 NFTs prior to the schedule to be featured on the marketplace’s website.
The NFTs were reportedly sold for a profit after he apparently used anonymous hot wallets and accounts. Devin Finzer, CEO and co-founder of OpenSea, wrote a blog post in September 2021 to corroborate the claims, and cited that Chastain had quit without any mention of his name.
According to the June report by former Securities and Exchange Commission attorney Alma Angotti, the lawsuit may pave the path for NFTs to be in the category of securities. Chastain is the first person in the world to be sued for reportedly committing insider trading with NFTs.
The SEC might gain more confidence to expand its regulatory and enforcement powers over some cryptocurrencies, should Chastain’s legal team reach a consensus with the prosecutors or lose the case.
Ishan Wahi, a former Coinbase product manager, his brother, and an accomplice were charged with insider trading. In that case, the SEC did something similar by declaring nine crypto assets as securities.
