Attorneys of a former OpenSea employee accused of insider trading submitted a motion to dismiss related charges, arguing that the assets are not securities or commodities.
Nate Chastain, who worked as an OpenSea product manager between January and September 2021, was convicted by the Department of Justice (DoJ) in June on two counts of wire financial fraud based on insider NFT trading.
According to a statement issued, it is the first time the DoJ has introduced such charges against such individuals, including NFTs. Each charge of financial and wire fraud faces a penalty sentence of 20 years in prison, meaning he faces a total of 40 years in prison.
Last week, Chastain's attorneys filed a motion in the US District Court for the Southern District of New York, alleging that the government used "ill-founded applications" of criminal law to establish a precedent.
Between June and September of last year, the DoJ claims Chastain was using company information to transact NFTs before they were showcased on OpenSea's homepage for "two to five times profit."
Based on his known wallets, it is estimated that he generated at least 19 ETH ($30,000) through such trades. A Twitter user found his alleged dealings in September of last year, roughly nine months before the DoJ filed charges.
"The catch is that NFTs are neither securities nor commodities," the lawyer wrote in their motion.
Whatever the theory, even if supported by case law, necessitates trading in securities and commodities, pointing out the US government's "flawed understanding" of the situation.
The lawyers argue that the company "in any form or context" cannot exist without that link to financial markets. For what it's worth, lawyers for Ishan Wahi, the former Coinbase product manager who was also charged with alleged insider trading, have made nearly identical arguments.
They also stated Chastain's insider information had no inherent market or economic value, which they think should result in the charge of wire fraud being dropped.
The lawyers for Chastain wrote that the seamless nature of the Ethereum blockchain, where the NFTs were traded, meant that the transactions were visible to the public and could not be shown to conceal illegal proceeds.
"All the defendant did was move money in an obvious and perceptible manner," they claimed. "However, the simple and obvious movement of money does not constitute money laundering."