In New York last week, the trial began of a former OpenSea employee who was indicted for wire fraud and money laundering in what is being seen as the first case of insider trading related to NFTs. He has been convicted of wire fraud and money laundering, both of which carry a maximum sentence of twenty years in prison. His sentencing is pending for 22 August.
To sum up what happened, OpenSea is the leading NFT marketplace (and completely dominated the sector at the time of the alleged crimes, June to September 2021), and often featured NFT collections of its choosing on its front page, which led to prices on those collections going up.
Nathaniel Chastain knew in advance which collections would be featured, and is accused of buying items from those collections in advance and selling them at a profit when being featured as their prices rose.
He did this using multiple anonymous wallets, and in contradiction of his contract, which prohibited such behavior.
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— NFTevening (@NFTevening) April 20, 2023
Chastain’s lawyers have argued that the term ‘insider trading’ should not be applied, since the defendant was not trading securities, and the term may confuse a jury. As such, the case raises the question of whether insider trading can refer to the trade of, essentially, anything, but it also has implications for NFTs, and how they are classified.
What Kind of Assets Are NFTs?
The prosecutors, in this case, charged Chastain, now a convict, with wire fraud and money laundering, meaning there is no requirement for them to identify NFTs as securities, but could NFTs, in fact, be classified as such?
This issue ties into wider debates around crypto and its regulation in the US, and globally, and there are mixed messages. The CFTC in the US oversees commodities, and has, in its case against Binance, stated that Bitcoin, Ethereum and Litecoin are commodities. Meanwhile, as an example of regulatory contradiction, the SEC, which deals with securities, charged crypto platform Bittrex for “operating an unregistered national securities exchange, broker, and clearing agency.”
Today we charged crypto asset trading platform Bittrex Inc. and its co-founder and former…
