In June, it became known that former OpenSea director Nathaniel Chastain was accused of fraud and money laundering and had already been arrested. However, the defendant’s lawyers are now calling for the case to be dropped. The reason given by attorneys is that Chastain has made profits with NFTs and they should not be classified as securities.
• The former OpenSea manager is said to have benefited from insider knowledge
• Lawyers are calling for the case to be dropped
• Possibility of imprisonment for up to 20 years
Former OpenSea director participates in NFT insider trading
In early June, the US Department of Justice announced that Nathaniel Chastain, a former product manager at OpenSea, the largest marketplace for non-fungible tokens (NFTs), was accused of fraud and money laundering. Chastain is said to have used exclusive insider information about which NFTs will soon find their way onto the platform to enrich themselves financially. According to the indictment, OpenSea has not announced the collectibles that will go on sale soon, but after it was released to the market, its price has increased significantly. Between June and September 2021, Chastain reportedly used this information to purchase several pre-OpenSea NFTs and later sold them at a profit of two to five times. The transactions were made via anonymous wallets, which the former OpenSea manager wanted to hide his identity with. He then left the company in September 2021.
The first case of insider trading of digital assets
“Counterterrorism operations may be new, but this type of criminal activity is not,” Attorney General Damien Williams said in a statement to the agency. “Nathaniel Chastain allegedly tricked OpenSea into using its confidential trading information to make money for himself. Today’s indictments demonstrate the department’s commitment to eliminating insider trading – whether it takes place on an exchange or on the blockchain.” Michael Driscoll of the FBI said the allegations against Chastain are a well-established form of fraud, although NFTs are a new phenomenon. “In this case, Chastain started an old insider trading scheme, using his knowledge of classified information to purchase dozens of NFTs before they appeared on the OpenSea homepage,” Driscoll said. “With any new investment vehicle, such as non-fungible tokens backed by the blockchain, there are those who are willing to exploit vulnerabilities for their own benefit. The FBI will continue to crack down on players who seek to manipulate the market in this way.”
Chastain’s Lawyers: NFTs Are Not Securities
Now, Chastain is asking the US District Court for the Southern District of New York to drop the charges against them, according to a letter from his attorney. The defendant is accused of using a fraud known as “internet fraud”, which is characterized by the use of the Internet or other means of telecommunications. According to the lawyers, this accusation was also made in a ruling in Carpenter v. United States, but the subject of the fraud was securities. In the letter, Chastain’s lawyers said that in such a case, this remains a “fundamental element of the crime.” “Thus, without any connection to the financial markets, there can be no insider trading in any form or context whatsoever.” Instead, the NFT trade is likened to “an art gallery window that has no commercial or salable value and is identifiable and is based on the employee’s unspoken ideas.”
Money laundering is impossible with the Ethereum blockchain?
In addition, this “new theory of money laundering,” which the US government wants to pursue with the indictment against Chastain, is inconclusive because the transactions were placed on the Ethereum blockchain and were therefore publicly viewable. In fact, as alleged in the indictment, Chastain’s lawyers say, the defendant did nothing but transfer the money in a clear and tangible manner. “However, a simple and obvious movement of funds does not constitute money laundering. Finally, the government has neither claimed nor can claim that related cryptocurrency movements – from one personal digital wallet to another personal digital wallet – constitute a ‘financial transaction’ within the meaning of the Money Laundering Act applies. “. Therefore, the charges against the former OpenSea manager should be dropped.
According to the US Department of Justice, Chastain could face up to 20 years in prison if convicted.
Despite the lawsuit: Chastain wants to build its own NFT platform
According to CoinDesk, Chastain has not pulled out of the industry despite his scandalous time at OpenSea. The defendant is currently working on its own NFT platform, called Oval, and aims to enable users to easily find NFTs that fit their personal taste. According to the crypto portal, at the end of February 2022, the startup expressed its interest in completing a funding round of three million US dollars. The project’s website, which you can still register as an interested party for future updates in April, is now no longer available.
SEC Head: Bitcoin Can Be Classified as a Commodity – Ether & Co. as securities
With the current trend towards cryptocurrencies such as Bitcoin, Ether & Co. As well as other crypto assets such as NFTs, government authorities currently still lack a precise definition of digital goods. For example, Bloomberg reported in March 2022 that the US financial watchdog, the Securities and Exchange Commission (SEC) is considering whether digital assets should be treated legally like securities. Only recently, Gary Gensler, head of the Crypto Monetary Authority, told CNBC that he is ready to classify bitcoin as a commodity. However, all other cryptocurrencies should be considered as securities. In December 2020, the SEC also filed a lawsuit against Ripple Labs, the operator of the cryptocurrency Ripple. Ripple is said to have raised $1.3 billion by offering unregistered securities. However, the legal dispute between the two parties is not over yet. The upcoming ruling is seen as a pioneer in the cryptocurrency industry.
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