The trial for a former OpenSea product manager accused of NFT insider trading has begun in New York.
The Southern District Court of New York recently conducted its first jury hearing for the case against Nathaniel Chastain, a former product manager at OpenSea.
Nathaniel Chastain is accused of insider trading with non-fungible tokens (NFTs), as alleged by the US Manhattan Attorney's Office on May 31st, 2022.
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Chastain faces two counts of criminal charges, including wire fraud and money laundering.
In the wire fraud count, authorities alleged that Chastain used inside information to purchase 45 NFTs right before their listing, only to sell them for a profit shortly afterward.
The court documents highlight instances of misconduct, including a case involving an NFT called "The Brawl 2." In August 2021, Chastain allegedly acquired four of these NFTs through anonymous accounts "minutes before" they appeared on OpenSea.
In October 2022, Chastain's defense team attempted to remove any reference to "insider trading" from his charges, claiming the term was "inflammatory" and only applicable to securities, not NFTs.
However, prosecutors countered by stating that "insider trading" can refer to various types of fraud involving non-public knowledge of trade assets.
Alma Angotti, a former US Securities and Exchange Commission (SEC) lawyer, suggested that this case could potentially result in NFTs being classified as securities under the Howey test.
Philip Moustakis, another ex-SEC employee, expressed similar concerns in a recent commentary, stating:
If this case sticks, there is precedent that insider trading theory can be applied to any asset class.
Ultimately, the outcome of this trial could have far-reaching implications for the NFT market and the broader world of digital assets.