- The SEC is using the case against Nate Chastain to label NFTs as securities, his lawyer has said
- David Miller argued that the SEC was bringing the case as a form or regulation by enforcement
- Chastain is accused of trading NFTs using privileged information on Opensea
The lawyer for Nate Chastain has argued that the Securities and Exchange Commission (SEC) is bringing its case against the former Opensea executive because it wants to label NFTs as securities. Chastain is accused of using privileged information over NFT listings on the site to enrich himself, but Chastain’s lawyer David Miller has argued that the SEC is bringing the case “to set precedent in the digital asset space”, contrary to its previous remarks. The suggestion echoes comments made by a former SEC lawyer who said in June that this was exactly what the SEC would try and do.
SEC Trying to “Plant a Flag in the Blockchain Industry”
Chastain was charged by the SEC with one charge of wire fraud and one of money laundering when it was discovered that he had been using information of what was going to appear on Opensea’s front page to enrich himself – the SEC alleges that he would buy some NFTs from the collection prior to the addition to the front page and then sell them once they were added, when they would usually increase in price.
Miller’s first response to the case was standard practice with a defendant – last week he filed a motion to dismiss the case, suggesting that the charges were invalid in part “because the NFTs at issue are neither securities nor commodities” and because the NFTs were not legally considered the platform’s property.
Miller then accused the SEC of doing what it has appeared to be doing for some time now – regulation by enforcement:
The government has brought the instant prosecution using ill-founded applications of
criminal law to set precedent in the digital asset space. While seeking to use this first-of-its-kind prosecution to posit broad assertions of insider trading, property theft, and money laundering, the government’s arguments are contrary to years of settled precedent and are a transparent effort to plant a flag in the blockchain industry.
Not the SEC’s First Rodeo
This suggestion of regulation by enforcement was highlighted last month by Commodity Futures Trading Commission (CFTC) Commissioner Caroline Pham, who criticised the approach in relation to the case against alleged Coinbase insider Shan Wahi. In the case, the SEC stated that seven of the nine coins Wahi allegedly insider traded were securities, the first anyone had heard of it.
The suggestion that the SEC may take the chance to label NFTs as securities was espoused last month by former SEC lawyer Alma Angotti, who explained how it is possible that NFTs could fall under the umbrella of stocks and securities, and that the SEC may use the Chastain case as a way of setting such a claim in stone.
According to Chastain’s lawyers, this is exactly what it is doing.