Dismissal of the OpenSea case highlights growing limits of using traditional fraud laws in NFT insider trading cases
U.S. prosecutors have decided not to retry a former OpenSea manager after a federal appeals court overturned his criminal conviction. The decision follows months of legal review and comes after Nathaniel Chastain already served part of his original sentence. As an early attempt to apply insider trading laws to nonfungible tokens and digital assets, it drew wide attention.
DOJ Moves to Dismiss OpenSea Insider Trading Charges After Appeals Ruling
Department of Justice (DOJ) of the United States confirmed it will move to dismiss the insider trading charges against Chastain, a former product manager at OpenSea. The action follows a July ruling by a federal appeals court that reversed his wire fraud and money laundering convictions.
Prosecutors informed a Manhattan federal court that they entered a one-month deferred prosecution agreement on Wednesday. Once that period ends, charges will be formally dismissed.
Manhattan US Attorney Jay Clayton said several factors supported the decision to step away from a retrial. Those factors included the time Chastain already served, including three months in prison after his 2023 sentencing.
Chastain also agreed not to contest the forfeiture of 15.98 Ether, valued at roughly $47,330. Prosecutors alleged those funds came from trades made using nonpublic information during his time at OpenSea.
OpenSea Case Exposes Gaps in US NFT Enforcement
In 2023, a jury convicted Chastain after prosecutors accused him of using insider knowledge about NFT homepage placements. According to court records, Chastain bought NFTs shortly before they were featured on OpenSea’s homepage.
He later sold those assets after prices rose following the exposure. Defense lawyers argued that homepage placement data did not qualify as company property under federal fraud laws. Such reasoning weakened the government’s case and limited the use of older fraud laws for digital assets.
Moreover, federal appeals judges later sided with that argument and overturned the conviction in July. The ruling found that jurors received improper instructions during the trial.
Under the deferred prosecution agreement, prosecutors will dismiss the charges if Chastain meets the stated conditions. Prosecutors said the decision reflects the time he already served and his agreement to forfeit the assets.
U.S. Pretrial Services will not supervise the former OpenSea manager once the case is formally closed. He may also apply to recover the $50,000 fine and a $200 special assessment paid after his conviction.
US OpenSea Insider Trading Case Calls for Clearer NFT Rules
Nathaniel Chastain’s prosecution marked the first US insider trading case tied to NFTs. Industry participants have since cited the reversal when calling for clearer rules around digital assets. Another NFT-related case was also overturned on appeal in recent years due to similar legal issues.
The case adds to a growing list of crypto investigations and prosecutions that have been dropped over procedural or evidentiary issues. Regulators continue to struggle with applying decades-old statutes to emerging digital assets. The outcome may guide how courts and prosecutors approach future NFT insider trading cases.
Source: https://www.livebitcoinnews.com/u-s-prosecutors-decide-against-retrial-in-opensea-insider-trading-case/
