OpenSea ‘insider trading’ could see NFTs labeled securities: Former SEC lawyer

OpenSea ‘insider trading’ could see NFTs labeled securities: Former SEC lawyer

Former Securities and Exchange Commission attorney Alma Angotti said news this week about allegations of insider trading by OpenSea employees could open the door for non-fungible tokens to be marked as securities.

On Wednesday, in an industry first, prosecutors in Manhattan charged former OpenSea product manager Nathaniel Chastain with insider trading.

The U.S. Attorney’s Office for the Southern District of New York said the exact charges were “wire fraud and money laundering in connection with a scheme to conduct insider trading.” So far, the term “insider trading” has not been used in cryptocurrencies, usually referring to insider trading in securities.

Related: EU Commissioner Calls for Global Coordination on Crypto Regulation


Angotti was previously an enforcement officer with the SEC, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network, and the Financial Industry Regulatory Authority. She is now a partner in a consulting firm called Guidehouse. She told TechCrunch:

“It’s likely a security under Howey’s test — if you buy an NFT and hope the price goes up so you can make money on it, it doesn’t make much of a difference [from securities]. ”

The Howey test is used to determine whether a transaction qualifies as an investment contract or security and requires disclosure and registration. An investment contract exists if an investment results in the expectation of profiting from the efforts of others.

OpenSea’s insider trading case against Nathaniel Chastain alleges that he purchased 45 NFTs over several months using an anonymous hot wallet and OpenSea’s own account, which he knew in advance would appear on the homepage. Then, after they were featured and appreciated, he would sell them for a profit.

According to Angotti, the allegations are not surprising:

“Stealing your employer’s confidential information is fraud, and once you move the proceeds of fraud through the monetary system, it’s money laundering.”

In similar news today, the Commodity Futures Trading Commission, which regulates commodities, not securities, is suing Gemini, alleging that the cryptocurrency exchange lied about its evaluation of futures contracts. The CFTC claims that Gemini misled them in 2017.

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