A judge has given the Department of Justice the green light to use the term “insider trading” in their case against OpenSea, the largest NFT marketplace. The decision comes as a trial date is set for the case, which centers around allegations of an OpenSea employee using their position to purchase NFTs before they were listed on the platform. The case is being closely watched by the NFT community and could have significant implications for the industry.
OpenSea’s former head of product Nathaniel Chastain is set to go on trial on April 24th, facing charges of wire fraud and money laundering. The trial comes after prosecutors filed charges against Chastain in October 2022, alleging that he used inside knowledge of which NFTs would appear on OpenSea’s front page to buy NFTs ahead of being featured and sell them for a profit once highlighted on the site.
This case has been called the first insider trading scheme involving digital assets, but there is a question of precedent in terms of insider trading, as the assets in question are not defined as securities or commodities. Chastain’s lawyers have argued against insider trading based on this technicality. However, U.S. District Judge Jesse M. Furman has denied Chastain’s arguments about use of the term “insider trading” and will be hearing the case against Chastain in April.
Furman has also granted the government’s motion to preclude witness opinions on the case, but a second motion was granted to preclude arguments that OpenSea suffered no harm. In addition, Chastain may elect to testify on “his beliefs regarding the effects of his conduct on OpenSea on the theory that such testimony would be probative of willfulness and intent.” Furman also ruled that “Chastain may be entitled to cross-examine these witnesses about the clarity of the agreement (or lack thereof),” and that the court may rule on the matter at trial.
This case is not the only one of its kind. Former Coinbase product manager Ishan Wahi recently pleaded guilty to two counts of conspiracy to commit wire fraud in February after a similar case. Wahi’s attorneys made a similar argument, arguing for the dismissal of the Securities and Exchange Commission’s case against him on the grounds that there is still no regulatory clarity around tokens as securities. Prosecutors filed charges against Wahi, his brother Nikkhil, and Sameer Ramani for allegedly violating securities laws.
As this case goes to trial, it serves as a reminder that digital assets and NFTs are still in their early stages and remain a largely unregulated market. This means that insiders with privileged information can gain an unfair advantage over others, leading to potential insider trading cases. It remains to be seen how this trial will impact the regulation of the digital asset market going forward. Stay tuned for updates on the trial and any potential legal implications for the wider digital asset landscape.