Court Refuses to Dismiss 'Insider-Trading' Case Against Former OpenSea Exec

Nate Chastain, who was head of product at the NFT marketplace, was indicted in June.

AccessTimeIconOct 24, 2022 at 1:35 p.m. UTC
Updated Oct 25, 2022 at 2:53 p.m. UTC

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.

A federal indictment of Nate Chastain, a former head of product at NFT (non-fungible token) marketplace OpenSea, can proceed, a federal judge ruled Friday.

Chastain was indicted in June on allegations of insider trading, and charged with wire fraud and money laundering. Chastain filed a motion to dismiss the charges in August, arguing that the government didn't have enough evidence to support a money-laundering charge and that he didn't "misappropriate" information. He thus couldn't be charged with wire fraud, he argued, and also couldn't be charged with insider trading because the NFTs he allegedly traded were neither securities nor commodities under the relevant part of the law.

In denying Chastain's motion, U.S. District Court Judge Jesse Furman of the Southern District of New York said two of Chastain's arguments – that prosecutors may not be able to prove that the NFTs are not "property" and that he didn't engage in the actions that would prove money laundering – might have merit, but should be presented before a jury, rather than in a dismissal motion.

Chastain's third argument – that he didn't engage in insider trading because that requires a security or a commodity to be traded – doesn't hold up at all, Furman wrote, as prosecutors didn't charge Chastain with an insider trading-related allegation.

"Chastain seizes on two references in the indictment and statements made by the government (in a press release and at the initial conference in this case) to assert that he is charged with 'insider trading,'" Furman wrote.

"But he is not charged with insider trading, at least in the classic sense of the term, which is a means of engaging in securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934... Instead, he is charged with wire fraud in violation of Section 1343. See Indictment ¶ 13. And in contrast to Section 10(b), which is limited to fraud 'in connection with the purchase or sale of any security,' Section 1343 makes no reference to securities or commodities."

Violation of rights?

On the same day Furman's ruling came out, Chastain filed three other memos, arguing that his Fourth and Fifth Amendment rights were violated, supporting an argument he first made at the end of September.

Specifically, Chastain's attorneys wrote that FBI agents didn't read Chastain's Miranda rights to him before questioning him or asking for his cellphone password and collecting evidence from it. As a result, Chastain's attorneys are asking for any evidence collected – including the contents of his cellphone – during the execution of a search warrant be suppressed because Chastain "was subjected to a custodial interrogation during the execution of the search warrant," even though he wasn't under arrest at the time.

"No reasonable person would have felt free to leave an analogous encounter in which several FBI agents demanded entry into their home in the early hours of the morning, wearing bulletproof vests, carrying holstered firearms and presenting them with a warrant that authorized a search of their person," the filing said.

The cellphone's contents were also not within the scope of the search warrant, the attorneys wrote.

In a separate filing, Chastain asked the court to order the Department of Justice to stop using the phrase "insider trading," calling it "prejudicial and inflammatory."

"The term’s presence in the indictment – and any reference to it at a trial – serves no legitimate prosecutorial purpose and is simply a means of increasing media attention and inflaming the jury in this first-of-its-kind case in the digital asset space," Chastain's attorneys wrote.

A third filing argues that Chastain is entitled to subpoena certain communications about OpenSea's listing process and around his former role.

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Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.

CoinDesk - Unknown

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.