Ex-OpenSea employee wants first NFT insider trading case thrown out

The logo of non-fungible token (NFT) marketplace OpenSea is seen through a magnifying glass among NFT items displayed on the site, in this illustration photo taken February 28, 2022. REUTERS/Florence Lo

(Reuters) – A former employee of non-fungible token marketplace OpenSea has asked a federal judge in New York to dismiss charges that he engaged in insider trading, saying prosecutors stretched the law to “plant a flag in the blockchain industry.”

Former OpenSea product manager Nathaniel Chastain was charged in June with wire fraud and money laundering over allegations that he secretly bought NFTs he had selected for OpenSea’s website and sold the tokens at a profit once they were featured. The case was the first to allege insider trading in digital assets. Chastain has pleaded not guilty.

In a motion to dismiss the case on Friday, Chastain argued the prosecution’s theory that he misapplied his own ideas about what should be on the website would “criminalize ongoing civil employment disputes.”

“The government would have this court believe that if an employee is at work, has a thought, and then acts in accordance with that thought, then the employee’s thought is — per se — the property of his employer,” his lawyers wrote. .

A spokesperson for the US attorney’s office declined to comment.

The wire fraud statute prohibits schemes to obtain property, and the U.S. Supreme Court has increasingly limited what falls into that category, Chastain said. He argued that the “ethereal” and “commercially worthless” decision to highlight a specific NFT is not proprietary.

The case raises another new legal question: whether insider trading in items other than securities or goods is a crime.

Chastain argued that it is not, saying the law prohibits insider trading to protect financial markets, not to keep companies’ information private.

“In the absence of any connection to the financial markets, insider trading, in whatever form or context, cannot exist,” he said.

The case is US v. Chastain, US District Court, Southern District of New York, No. 22-cr-00305.

For the government: Thomas Burnett and Nicolas Roos.

For Chastain: David Miller, Gregory Kehoe and Charles Berk of Greenberg Traurig.

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