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

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

Alma Angotti, a former Securities and Exchange Commission lawyer, says that this week’s news of an OpenSea employee being accused with insider trading could lead to non-fungible tokens being classified as securities.

In a historic move for the industry on Wednesday, Nathaniel Chastain, former OpenSea product manger, was charged by Manhattan prosecutors with insider trading.

According to the U.S. Attorney’s Office for the Southern District of New York, the charges are wire fraud and money laundering in connection to a scheme to engage in insider trading.

Related: EU Commissioner calls for global coordination in crypto regulation

Angotti was an enforcement officer at the SEC (the U.S. Department of the Treasury’s Financial Crimes Enforcement Network) and the Financial Industry Regulatory Authority. Now, she is a partner in a consulting company called Guidehouse. TechCrunch spoke with her:

“It could very possibly be a security according to the Howey Test — If you’re buying a part of an NFT and hoping that the price will rise so you make money, that’s not much different from securities.”

To determine whether a transaction is an investment contract or security, the Howey Test is used. This test is subject to disclosures, registrations, and other requirements. If an investment results in the expectation that others will profit, it is called an investment contract.

Nathaniel Chastain is being accused in the OpenSea case for insider trading. He allegedly used OpenSea accounts and anonymous hot wallets to buy 45 NFTs over a period of time that he knew would be featured on the website’s home page. After they were featured, he would sell them to make a profit and increase in value.

According to Angotti the charges are not surprising.

“Misappropriating confidential information from your employer is fraud. Once the proceeds are moved through the monetary systems, it’s money laundering.”

Today’s news is similar. The Commodity Futures Trading Commission (which regulates securities rather than commodities) sued Gemini, claiming that the crypto exchange misled them in futures contract evaluation. In 2017, the CFTC claimed Gemini had misled them.

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