- The case against Nate Chastain could see NFTs classed as securities
- A former SEC lawyer says that NFTs may not pass the Howey Test
- Treating NFTs as securities would have huge ramifications for the NFT industry
A former lawyer for the Securities and Exchange Commission (SEC) has suggested that the case against alleged OpenSea insider trader Nate Chastain could see NFTs classed as securities. Alma Angotti, partner and global legislative and regulatory risk leader at consulting firm Guidehouse, used to work for the SEC and told TechCrunch yesterday that it’s possible that NFTs may fall under the umbrella of stocks and securities. This would mark the first such classification of the asset class and could impact future legal cases involving NFTs.
NFTs “Not Very Different” From Securities
The case of Nate Chastain centres around NFTs he bought allegedly using inside knowledge of which ones were about to hit the OpenSea homepage. When they did, Chastain sold them at a healthy profit, but was rumbled when someone on Twitter spotted the activity. Chastain quit before he could be fired, but the FBI investigated the case and Chastain was arrested yesterday on one charge of wire fraud and one of money laundering.
The case will inevitably lead to how NFTs should be classified, and Angotti says that the SEC may well see them as securities:
It could very well be a security under the Howey Test — if you’re buying a piece of an NFT and hoping the price will go up so you make money from it, that’s not very different [from securities].
NFT Projects May Have to Exclude U.S. Buyers
The impact of this could be huge, with any entity that issues NFTs to users, whether free or paid for, potentially needing to become a regulated securities seller in order to continue operating. This, of course, comes with all sorts of knock on effects, and would entirely change the landscape of the NFT industry in the U.S.
Of course, it would be up to the SEC to prove that each NFT was a security rather than, say, an in-game utility, but this is the same argument that has bedevilled cryptocurrencies since 2017 and we’re still no closer to anything like consistency, so we won’t hold out too much hope.