Ex-OpenSea exec dodges insider trading charge, wire fraud trial to continue

U.S. Judge Jesse Furman said the insider trading charge against former OpenSea employee Nate Chastain is “misleading” and should be removed from the record, but the wire fraud trial will continue.

The U.S. Department of Justice (DOJ) charged Chastain with wire fraud and insider trading charges earlier in June. The authority alleged that Chastain misappropriated insider information from OpenSea, to trade NFTs that would be featured on the homepage.

In his defense, Chastain said the charges were inappropriate as insider trading laws could not be applied to NFTs. He noted that according to the Carpenter wire fraud theory, insider trading only applied to securities or commodities, which NFTs were not.

Chastain added that the listing information was not property as it was not confidential business information to OpenSea. He claimed that other employees had access to the said information.

Presiding Judge Furman said in a court filing that Chastain’s argument had “some force.” She said that given the transparent nature of the transaction on Ethereum, the government might not prove the allegation of money laundering.

Judge Furman added that since insider trading charges must involve securities or commodities, the government’s usage of the phrase “insider trading” in Chastain’s case may be misleading.

The judge said:

“The appropriate remedy would presumably be to strike that phrase from the indictment, and preclude the government from using it at trial.”

Wired fraud trial to continue

Judge Furman, however, countered Chastain’s argument to have the charges dismissed based on the Carpenter Wired fraud theory.

Based on Carpenter’s theory, a columnist for the Wall Street Journal was accused of disclosing trading information to his accomplices. In defense, they claimed that the fraud was not in connection with the sale of securities and that the information was not the property of the Wall Street Journal.

The Supreme court, however, ruled that the information constituted property within the wire fraud statute.

Based on the Supreme court’s judgment and similar rulings on information misappropriation, Judge Furman denied Chastain’s request to dismiss the wire fraud charges.