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On October 21, 2022, the United States District Court for the
Southern District of New York issued an order denying a former
OpenSea employee’s motion to dismiss “insider
trading” charges brought against him, clearing the way for the
U.S. Department of Justice to proceed with its enforcement

As we previously reported, in June, the DOJ sent
shockwaves through the non-fungible token industry by bringing wire
fraud and money laundering charges against Nathan Chastain,
claiming that he broke the law by participating in the “first ever digital asset insider trading

Chastain moved to dismiss the Indictment, arguing that the
“confidential business information” he allegedly
misappropriated to profit from the purchase and sale of NFTs was
not OpenSea’s “property” within the meaning of the
wire fraud statute. He further argued that the DOJ could not prove
that he engaged in money laundering because transactions on the Ethereum blockchain are
. Finally, Chastain contended that the wire fraud charges
based on a “misappropriation theory” were deficient
because those charges require trading in securities or commodities,
and NFTs are neither. For this argument, Chastain relied heavily on
the DOJ’s references to “insider trading” in a press release and at the initial conference of
his case.

The court has now denied Chastain’s motion. Although the
court found that Chastain’s arguments “have some
force,” it concluded that they are for a jury to decide at
trial. In rejecting Chastain’s arguments, the Court reasoned,
as we noted previously, that the DOJ did not
actually charge him with insider trading as defined under
securities law, so the question of whether NFTs are securities is
of no consequence here. The court explained in a footnote, however,
that Chastain has separately moved to strike the phrase
“insider trading” from the Indictment and preclude the
Government from using it at trial. The Court reserved judgment on
those issues, noting that the motion has not yet been fully
submitted for consideration.

As this case continues to develop (along with the DOJ’s other NFT-related cases), companies, team
leaders, DAOs, and others working in Web3 or dealing in NFTs should
consider implementing, updating, enforcing, and complying with NFT
insider trading policies (such as the open source policy we prepared along with Tim

This alert provides general coverage of its subject area. We
provide it with the understanding that Frankfurt Kurnit Klein &
Selz is not engaged herein in rendering legal advice, and shall not
be liable for any damages resulting from any error, inaccuracy, or
omission. Our attorneys practice law only in jurisdictions in which
they are properly authorized to do so. We do not seek to represent
clients in other jurisdictions.

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