The former head of product for OpenSea, Nate Chastain, is facing trial this week over allegations of wire fraud and money laundering. However, Chastain, through his legal team, is pushing back against the DoJ’s characterisation of the charges, alleging that they are misconstrued as insider trading charges.
How is digital asset insider trading defined?
In October 2021, Chastain was accused of wire fraud and money laundering, behaviour the DoJ styled as insider trading. According to the indictment, the DoJ levied these charges because it claimed Chastain used confidential information to enrich himself, based on his prior inside knowledge about which non-fungible tokens would appear on OpenSea. However, the defence pressed back against this assertion, particularly given the lack of clarity on whether NFTs should be regarded as securities or commodities; the relevant legislation and precedents, guidance and law are expected to evolve rapidly given blockchain technology’s fast-moving nature.
If the court finds Chastain at fault for either charge, he could face a two-decade prison term.
Why is there a debate on the use of the term?
Chastain contends that if terminology such as “insider trading” is used, it wrongly prejudices the jury’s understanding of the charges against him instead of focusing on legality at the heart of the issue.
Also hanging in the balance is how whoever is found guilty of “insider trading” could face hard-hitting consequences harming the digital asset marketplace as the capital inflows begin to spike unparalleled adoption.
The defence’s proposals
A letter it submitted to Judge Furman over the weekend argues not only should language be changed to bolster the case against Chastain, but that the assertion of who has actual grievances resulting from his purported illicit activities are wider than his orchestrated wrongdoing with NFT insider trading.
His legal arguments centre on the fact that because buyers and sellers are benefiting from existing in government-friendly jurisdictions with tax havens, whereas these anonymous networks exploiting market efficiencies of nfts are not subject to international and democratic norms. The US security and report tax laws entitle investors to the profits of anyone engaging in insider trading, whether they bought shares sold by insiders or whether the traded securities originated from an automated sale process.
Whatever the outcome, the digital currency market—with its lure of unfettered wealth and opacity to regulators – make chances of insider trading behaviour increasingly likely while regulators search for guidance adaptation policies.
[h/t Pedro Solimano]