DOJ case against former OpenSea chief could label NFTs as securities, former SEC lawyer says

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There has been no shortage of talk about the NFT market after the seemingly calm industry came to the forefront of the crypto space last year as adoption accelerated.

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So far, the industry has received no major negative feedback, other than snide comments from people outside of the NFT space stating that there is no real reason why people would pay thousands of dollars in crypto for a digital image.

But all hell broke loose on June 1 after Nate Chastain, the former head of the largest NFT marketplace, OpenSea, was arrested and charged with “electronic fraud and money laundering in connection with an insider trading scheme in [NFTs]”, according to Press release from the U.S. Attorney’s Office for the Southern District of New York, TechCrunch informed.

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What is notable is that the government refers to this as “insider trading”. shares or other securities people who have access to inside information about the business they work for.

So is this insider trading or perhaps an attempt to brand NFTs as securities?

It’s not for me to decide (for many reasons, namely that I’m not a lawyer). However, the case may determine whether or not NFTs are indeed securities, and whether the label really matters to the future of digital assets.

Alma Angottia partner and head of global legal and regulatory risk at consulting firm Guidehouse, told TechCrunch that it’s possible NFTs could fall under the equities and securities umbrella.

“It may well be a security under Howie Test – if you buy a piece of NFT and hope the price goes up and you make money from it, it’s not much different [from securities]”.

Angotti previously worked as a law enforcement officer with the US Securities and Exchange Commission, the US Treasury Department’s Financial Crime Enforcement Network, and the Financial Industry Regulatory Authority. She now leads Guidehouse projects on cryptocurrencies, digital assets and fintech.

“Misappropriation of your employer’s confidential information is fraud, and once you move the proceeds of this fraud through the monetary system, it’s money laundering,” Angotti said. “This [charge] not surprising at all.”

Damian Williams, U.S. Attorney for the Southern District of New York, echoed this in a press release:

NFTs may be new, but this type of criminal scheme is not. Nathaniel Chastain allegedly betrayed OpenSea by using its confidential business information to make money for himself. Today’s allegations demonstrate this Authority’s commitment to rooting out insider trading, whether it occurs in the stock market or on the blockchain.

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