United States prosecutors have opposed a motion by a former employee of nonfungible token (NFT) marketplace OpenSea to remove “insider trading” references from his charges.
Prosecutors said the phrase accurately describes the crimes the former OpenSea product manager Nathaniel Chastain is accused of in a memo filed on Oct. 14. It was responding to a motion by Chastain to stop referring to the phrase on Oct. 3, according to Law360.
Chastain was charged in June for allegedly buying 45 NFTs from June to September 2021 through anonymous wallets and selling them for a profit. He allegedly used his position at OpenSea to either choose or know which collections were featured on the homepage, which often saw their values increase.
Chastain argued the use of “insider trading” to describe his alleged actions is “inflammatory” and doesn’t have anything to do with the accusations he faces, adding a jury may be influenced by the term if his case is brought to trial.
He also added that “insider trading” only applies to securities and not to NFTs, a claim similarly made in August by his legal team, and the phrase was used to spark attention in the media to skew the jury’s view of him.
Prosecutors fired back, stating the phrase “accurately captures” the accusations made against him and the term isn’t “so inherently inflammatory” to warrant the “extreme measure” of having the term removed from his charges.
They also rebuked his claim of insider trading only applying to securities calling it a “legal error” and an “unduly cramped understanding of the phrase” claiming it can be used to reference multiple types of fraud in which someone with non-public knowledge uses it to trade assets.
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The term “insider trading” had previously not been used in reference to cryptocurrencies or NFTs before Chastain’s charges.
In June, shortly after Chastain was charged, former U.S. Securities and Exchange Commission (SEC) lawyer Alma Angotti said the case might see NFTs labeled as securities as they could be considered one under the Howey Test.
The Howey Test is used to determine if a transaction is an “investment contract” which exists when there is the “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others,” according to the SEC.