OpenSea insider trading case: All that happened at the first court hearing

• New York court holds its first grand jury hearing in the insider trading case against former OpenSea product manager.
• Nathaniel Christian was indicted on wire fraud and money laundering charges last year in the first NFT insider trading case.

The District Court for the Southern District of New York recently held the first hearing in the OpenSea NFT insider trading case. During the hearing on 24 April, prosecutors from the Office of the U.S. Attorneys for the Southern District made their case against Nathaniel Chastain.

Recall that Chastain was the OpenSea product manager who has been accused of insider trading with non-fungible tokens. 

NFTs may be labeled securities

According to an unsealed indictment from May 2022, the U.S. Department of Justice filed two grand jury charges against Nathaniel Chastain. These included wire fraud and money laundering.

Expanding on the former, prosecutors alleged that the former employee used confidential business information to make a profit. He used knowledge related to the NFTs that were to be featured on OpenSea’s homepage. Furthermore, the accused also secretly purchased dozens of NFTs shortly before they were featured. 

As per the money laundering charge, Chastain initiated transactions involving ill-gotten gains in an attempt to conceal the funds. This took place between June 2021 and September 2021. To that end, the prosecutors demanded the forfeiture of all funds derived from the insider trading scheme. 

The prosecution cited specific examples of misconduct, such as Chastain allegedly purchasing four NFTs, “The Brawl 2,” minutes before they were featured on OpenSea and then selling them within hours for a profit.

In October last year, Chastain’s legal representatives filed a motion to remove the references to “insider trading” from the charges filed against him. However, the motion was unsuccessful.

Chastain argued that “insider trading” only applies to securities and not NFTs. However, prosecutors noted that the term can refer to multiple types of fraud where someone with non-public knowledge uses it to trade assets.

Alma Angotti, a former lawyer for the U.S. SEC, stated last year that the NFTs involved in Chastain’s case could be labeled securities if they pass the Howey Test.

“It could very well be a security under the Howey Test if you’re buying a piece of an NFT and hoping the price will go up so you make money from it, that’s not very different,” the lawyer added.