Bid of OpenSea’s Ex-Employee to Have NFT Wire Fraud Case Dismissed Fails
According to a report, the court recently rejected a request submitted by Nathaniel Chastain, a former OpenSea head of product, to have the indictment against him dismissed. Chastain is accused of insider trading—a practice that generated more than $1.7 million in the crypto sector throughout 2021—and wire fraud.
Court Rejects Chastain’s Request to Dismiss Indictment
Nathaniel Chastain, the former head of product at OpenSea, was accused earlier this year of insider trading. Allegedly, Chastain used his foreknowledge of which NFTs would be placed on the front page of the marketplace for personal gain. He would purchase the token beforehand, and sell them after they got posted for a hefty profit.
On June 15th, 2022, the Department of Justice announced Chastain’s arrest. Two months later, the legal team of OpenSea’s ex-employee filed a motion to dismiss the case. The crux of the argument revolved around the notion that the indictment is based on “ill-founded applications of criminal law,” due to the nature of NFTs.
The court finally responded this Friday. While the presiding Judge Furman found some validity in certain arguments made by the motion, he refused to sustain it. The accusation of insider trading was removed from the indictment, but the court states that there are grounds to convict Chastain of wire fraud.
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Chastain’s Argument Explained
The request to dismiss charges against Chastain contained three main arguments. The first argument stated that Chastain can’t be accused of insider trading since he was dealing with NFT and not securities or commodities. They also requested the accusation of insider trading be removed as it “serves no legitimate prosecutorial purpose.”
This point led to the warning that ruling in favor of the prosecution could set a dangerous precedent. The request argues that “permitting the government to expand the scope of the wire fraud statute to reach such ethereal and intangible interests would serve to overextend the already farreaching fraud statutes” Considering that the regulators have been probing the broader NFT sector throughout 2022, and have recently started investigating Yuga Labs, the concerns expressed in the document are likely shared by many within the sector.
The final point was meant to dismiss the charges of wire fraud. The motion argued that the accusation can only be brought pertaining to property while NFTs weren’t truly property since they have no definable market value—as defined by the US Supreme Court. Judge Furman strongly disagrees with this argument.
Furman cited the Supreme Court ruling in the Carpenter v. United States, 484 U.S. 19 (1987) case. This ruling concluded the prosecution of a Wall Street Journal columnist, Rober Foster Winans, who stood accused of mail fraud and insider trading. Winans was notifying a broker about the stocks that were to be featured in upcoming columns.
This case set the precedent for what is to be considered “property” in similar cases, and, according to Furman, it renders Chastain’s arguments about NFTs not being property moot. Finally, the court suggested the term “insider trading” be removed from the indictment but ruled the case against OpenSea’s former head of product could proceed.
Do you think this ruling might set a precedent for the legal treatment of NFTs in the US? Let us know in the comments below.