Prosecutors want to claim NFTs as securities, says legal team of former OpenSea employee

Lawyers representing Nathaniel Chastain, the former chief product officer of OpenSea charged with insider trading, claimed that US author...



Lawyers representing Nathaniel Chastain, the former chief product officer of OpenSea charged with insider trading, claimed that US authorities only filed the complaint in an attempt to set a legal precedent that non-fungible tokens (NFTs) are titles.

In a Friday filing with court for the Southern District of New York, Chastain’s legal team of Greenberg Traurig deposit a motion to dismiss the indictment against him, which included allegations of wire fraud and money laundering related to an NFT insider trading scheme from June to September 2021. The lawyers argued that the The charges against the former OpenSea employee were invalid in part “because the NFTs at issue are neither securities nor commodities” and the tokens were not legally considered property of the platform.

“The government has taken immediate action using ill-founded applications of criminal law to set a precedent in the digital asset space,” Chastain’s legal team said. “While seeking to use this first-of-its-kind lawsuit to broadly assert insider trading, asset theft and money laundering, the government’s arguments run counter to years of established precedent and constitute an effort transparent to plant a flag in the blockchain industry.”

Prosecutors accused Chastain of insider trading in June, alleging that he used his position and inside information at OpenSea to buy 45 NFTs before they were featured on the market’s website. He reportedly used anonymous hot wallets and accounts, later selling the NFTs for a profit. Don’t Write About Chastain by Name, OpenSea Co-Founder and CEO Devin Finzer confirmed some of the allegations in a September 2021 blog post, noting that the employee had quit.

Cointelegraph reported in June that former Securities and Exchange Commission lawyer Alma Angotti says the deal could open the doors to NFTs being labeled as securities. Chastain was one of the first people to be charged in the United States in a case related to NFT insider trading in the crypto space.

Related: SEC Investigates NFT Market Over Potential Securities Violations: Reports

If Chastain’s legal team reaches a settlement with prosecutors or loses the case, it could encourage the SEC to expand its regulatory and enforcement powers over certain cryptocurrencies. The SEC has taken a similar step to label nine crypto assets as securities in an insider trading case against former Coinbase chief product officer Ishan Wahi, his brother and an associate.