The Weekend Wrap: January 21, 2024
NFT insider trading appeal progresses, DC Trump case remains on hold
Welcome to the Weekend Wrap! Here is the week’s white collar news.
White Collar Highlights
There’s a lot of news in the non-Trump prosecution world today, so let’s start with that for a change.
Appeal of NFT “Insider Trading” Conviction
Attorneys for Nathaniel Chastain filed their opening brief in the U.S. Court of Appeals for the Second Circuit, challenging his so-called “insider trading” conviction. Chastain was an employee at OpenSea, an online marketplace for buying and selling non-fungible tokens (NFTs). NFTs are digital assets based on the same blockchain technology that powers cryptocurrencies. An NFT is analogous to a digital work of art. Each NFT has a unique digital identifier code that is recorded on the blockchain and certifies that the work is original.
NFTs may be bought and sold, like collectibles or artwork, and those transactions are also recorded on the public blockchain. NFTs may be copied (just as prints may be made of a famous painting) but only the owner of the digital key owns the original NFT. At the peak of the craze in 2022 the NFT market was worth hundreds of millions of dollars, but it has since largely collapsed.
One of the best-known examples is a group of NFTs called the Bored Ape Yacht Club. One of them sold for more than $3 million.
Image of a Bored Ape NFT
OpenSea would promote certain NFTs on its website, as a sort of “NFT of the week.” Chastain was in charge of deciding which ones would be featured. The value of an NFT would typically rise once it was highlighted by OpenSea. Chastain used his knowledge of which NFTs were about to be featured to buy those NFTs in advance and then sell them at a profit after they appeared on the website and their value rose. He made a total of about $50,000 before his actions were discovered and he resigned.
The Justice Department indicted Chastain and trumpeted the indictment as the first ever digital asset insider trading case. When the case was indicted in June of 2022, I argued that this really wasn’t insider trading and probably shouldn’t be a criminal case at all. You can find that post here:
Chastain was convicted at trial of wire fraud and money laundering (not insider trading) and has appealed. Last week he filed his brief in the Second Circuit, making the argument that I predicted: that the information about which NFT would be featured on the OpenSea website is not “property” for purposes of federal fraud laws. That means, he argues, that he can’t be convicted of fraud for using that information without his employer’s permission (and if the fraud conviction fails, the money laundering conviction does as well).
I think Chastain is right. This kind of internal business planning, which has no commercial value, does not constitute intangible property. A long line of Supreme Court cases over the past few decades supports that view. If you’re interested, I explained in more detail in my 2022 post above.
Chastain should win this appeal, and if he doesn’t he should win at the Supreme Court if they agree to hear it. I’ll be keeping an eye on the case.
Menendez and His Wife Seek Separate Trials
Senator Bob Menendez and his wife each filed motions arguing that their cases must be severed from each other so they can have separate trials. Along with three New Jersey businessmen, they were indicted last September on public corruption charges. They argue they are entitled to be tried separately in order to preserve their rights to marital privilege; in a joint trial, for example, one spouse may want to waive privilege and introduce evidence of marital communications that the other spouse wishes to keep private. Trying them separately avoids any such dilemma.
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