Former OpenSea Employee Files to Dismiss Indictment—Says Government Has No Case

The lawyers of Nathaniel Chatain filed a motion to dismiss the indictment against their client on Monday, August 22nd. According to the motion, the charges against the former OpenSea head of product are based on “ill-founded applications of criminal law.”

Why Does Chastain Claim the Indictment Against Him Should be Dismissed?

Chastain’s legal team identifies three main reasons why the insider trading case cannot stand. Their first argument is that the accusation of wire fraud insider trading is based on the Carpenter v. United States case which they call dubious. Furthermore, they make a claim that this kind of insider trading is with regard to securities and that NFTs are simply not securities.

The rub, however, is that the NFTs are neither securities nor commodities. And the government agrees. Thus, we are left with a case of first impression—on multiple fronts. Can the government proceed on a Carpenter wire fraud theory of insider trading in the absence of any allegation involving securities or commodities trading? The government, of course, says yes. The Supreme Court and 40 years of insider trading precedent say no.

The second point the motion makes is that such a wire fraud charge can only be brought in the case of actual property with market value. The claim is that NFTs don’t fit the Supreme Court definition of property as they have no determinable marketable or sale value other than what is contained in the employer’s—OpenSea’s in this case—unspoken thoughts.

Furthermore, they argue that a ruling in favor of the prosecution carries the risk of increasing government reach which they claim is already dangerously overextended.

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, criminalize run-of-the-mill civil employment disputes, and sow uncertainty into the public’s perception of the statute’s limitations.

The third argument is that the theory of money laundering presented in the case against Chastain is novel. They claim that what he did is not money laundering since all the transactions were made on the blockchain—and were thus publicly available information

 Indeed, as alleged in the Indictment, the defendant did nothing more than move money in an obvious and perceptible manner. The simple and manifest movement of money, however, does not constitute money laundering.

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Why Was Chastain Charged in the First Place?

Chastain was initially accused of abusing his position to increase personal wealth in late 2021. Apparently, he purchased NFTs right before they were placed on the front page of OpenSea and sold them for profit after their price jumped due to exposure.

On September 15th, OpenSea published a blog post regarding the scandal. The company used that opportunity to reinforce its commitment to its community and explained that one of its employees has been forced to resign following multiple incidents of abusing insider knowledge.

Things took a turn for the worst for the former head of product as he was arrested on Wednesday, June 15th, 2022. On the same day, the Department of Justice announced that a “former employee of NFT marketplace was charged In first ever digital asset insider trading scheme.”

This news broke just before it was revealed that crypto insider trading might have generated more than $1.7 million between February 2021 and May 2022. While the fate of the Chastain case isn’t utterly decided, it remains clear that the government will continue its efforts to regulate crypto. The question is whether this case will set a precedent, or force a change in strategy among the legislators, and possibly prompt a more extensive update of relevant laws.

Do you think the indictment against Nathaniel Chastain will set up a legal precedent or end up being dismissed? Let us know in the comments below.