The DOJ lawsuit, which alleges that Nathaniel Chastain, a former product manager at online NFT marketplace OpenSea, engaged in NFT insider trading for his own benefit, could be the U.S. government’s first attempt at figuring out its role as a regulator, said Moish Peltz, an New York-based NFT lawyer and partner at law firm Falcon Rappaport & Berkman PLLC.
Chastain faces one count of wire fraud and one count of money laundering, which carry a combined maximum sentence of 40 years in prison for allegedly front-running $60,000 in NFTs.
“The government here is coming in taking the position that these are big marketplaces. There's a lot of money at stake now,” said Peltz during CoinDesk TV’s “First Mover” program. “There's a lot of consumers that are coming in, whether for collecting or looking to make money or for some other reason, and they should have confidence that the marketplace works, and it's not stacked against them.”
Chastain, who was once the public face of OpenSea, the largest online marketplace to buy and sell NFTs, was charged in an indictment unsealed Wednesday. The Justice Department alleges he breached an employment agreement in which he used confidential business information to purchase NFTs in advance of them being featured on the marketplace’s homepage. The indictment adds that as part of Chastain’s employment he was responsible for selecting the homepage’s NFTs.
According to Peltz, the DOJ could be trying to make an example out of Chastain. “If you were to use insider information for your benefit, that could be a criminal violation,” he said.
Consumers may have been the ultimate victim rather than OpenSea if these charges are true, according to Peltz.
“It's one thing to know that these [NFTs] are highly volatile and speculative and you can lose all your money. It's another thing to have insider information and use that to exploit purchasers in that marketplace,” Peltz said. “Then there may also be a governmental role in that marketplace.”
Peltz added that a possible governmental role raises questions for companies operating in the space that have employees who have access to confidential information that could move the crypto markets.
“Whether in marijuana assets or altcoins or NFTs,” he said, “you should be thinking, ‘What’s going on here? Do we have an obligation as a company to have policies and procedures in place to speak to our employees, to educate [and] to make sure they know what the ground rules are?’”
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