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The Lawyers representing OpenSea’s former product head Nate Chastain said that the NFTs don’t fall in the category of either securities or commodities. Thus, wire fraud charges aren’t applicable to them.
On Monday, August 22, the world’s largest NFT marketplace OpenSea filed a motion to dismiss a case against Nate Chastain, the former product head at the company, on allegations of NFT insider trading.
Insider Trading on OpenSea
A grand jury at the Department of Justice (DoJ) had indicted Chastain of conducting wire fraud. They also accused him of money laundering charges in the insider trading scandal. Besides, the DoJ has accused him of using confidential OpenSea business information and purchasing NFTs shortly after being featured on the company’s homepage.
After Chastain bought those NFTs, he allegedly sold them for profit. The grand jury has also accused him of conducting purchases through an anonymous digital wallet and anonymous OpenSea accounts.
Lawyers representing Chastain filed the motion in the United States District Court for the Southern District of New York. The lawyers argued that it would be wrong to classify NFTs as securities or commodities. Thus, the wire fraud charges aren’t applicable to them. Referring to Carpenter vs. United States, a 2018 ruling by the US Supreme Court, Chastain’s lawyers said:
“In any prosecution under a Carpenter wire fraud theory of insider trading, the existence of securities or commodities trading remains an essential element of the offense”.
Lawyers Demand Proof from Government
In their further argument, Chastain’s lawyers said that the NFT transactions in question were processed on the Ethereum blockchain network. The lawyers argued that considering Ethereum’s open-source nature and public viewing availability, it is not possible to use these transactions for money laundering.
The lawyers also stated the government cannot prove that the specific transactions it quotes qualify as financial transactions under the money-laundering rules. In the motion to dismiss the indictment, the lawyers wrote:
“The government has brought the instant prosecution using ill-founded applications of criminal law to set precedent in the digital asset space”.
Chastain resigned from OpenSea last year in September 2021. Since then, he has been working on a new NFT platform dubbed Oval. He further described Oval as a personalized platform for collecting NFTs. Despite the ongoing case, OpenSea continued to work further with new developments. The marketplace recently unveiled its Solana launchpad NFT feature.