A few months ago, the story broke about an ex-OpenSea employee who had been charged with insider trading. The employee, Nathaniel Chastain, became the first person to be charged with insider trading with regard to NFTs. How this worked was that Chastain, knowing which NFTs would be featured on the OpenSea home page, would buy assets from those collections and then sell them for a profit.
Now, months after he was charged, his legal team is looking to have his charges dismissed. As they put it, these charges are only being brought about to set the legal precedent of NFTs being securities.
To Charge or Not to Charge?
On August 19, 2022, Chastain’s legal team filed a motion with the court of the Southern District of New York to dismiss his charges. According to the documents, the grounds for this dismissal would be the fact that legally speaking, NFTs are not considered securities or even the property of OpenSea.
And because these assets are not ‘securities’ per se, there is no ground for Chastain being charged with securities fraud or insider trading.
His team has also made the argument that prosecutors are only pursuing the case in order to set a legal precedent on securities and the digital asset space.
“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,” his legal team says.
The legal status of blockchain-based assets has been a point of contention for years now and it seems it will play a role in this case. Several companies that have dealt with digital assets such as Telegram have found themselves in hot water with the Securities and Exchange Commission in the United States over the legal categorization of their assets.
While this case is already a landmark one, given that it is the first time someone is being charged with insider trading for dealing in NFTs, it will likely make history in other ways. If Chastain’s legal team gets the charges dismissed, it could set a clear precedent that NFTs are not securities. But if this motion is dismissed and he is convicted, it could be a legal precedent in the opposite direction.
NFTs Legal Status
For years, the legal status of digital assets has been under debate both inside and outside of the courtroom. While this case will be yet another instance of that, it also shows that as profitable as the NFT space is, there are people who will act shadily and maliciously to make a profit.
It should be noted that Chastain’s legal team hasn’t argued that he didn’t exploit his position to scam people essentially but that he should have his charges dismissed on technical grounds. Even as the industry progresses, legal status aside, it does show that even top marketplaces need checks in place to prevent exploitation.