Former Securities and Exchange Commission lawyer Alma Angotti says this week\u2019s news about an OpenSea employee being charged with insider trading could open the doors to non-fungible tokens being labeled as securities.\u00a0<\/p>\n
On Wednesday, in a first for the industry, prosecutors in Manhattan charged former OpenSea product manager Nathaniel Chastain with insider trading. <\/p>\n
The U.S. Attorney\u2019s Office for the Southern District of New York said the exact charges were \u201cwire fraud and money laundering in connection with a scheme to commit insider trading.\u201d Until now, the phrase \u201cinsider trading\u201d has not been used in regard to cryptocurrency and typically refers to insider trading of securities.<\/p>\n
Related: <\/em><\/strong>EU commissioner calls for global coordination on crypto regulation<\/em><\/strong><\/p>\n Angotti was once an enforcement official at the SEC, the U.S. Department of the Treasury\u2019s Financial Crimes Enforcement Network, and the Financial Industry Regulatory Authority. She is now a partner at a consulting firm called Guidehouse. She told TechCrunch: <\/p>\n \u201cIt could very well be a security under the Howey Test \u2014 if you\u2019re buying a piece of an NFT and hoping the price will go up so you make money from it, that\u2019s not very different [from securities].\u201d <\/p><\/blockquote>\n The Howey Test is used to determine if a transaction qualifies as an investment contract, or security, which is subject to disclosures and registrations. An investment contract exists if an investment results in the expectation of profit from the efforts of others.<\/p>\n The OpenSea case of insider trading against Nathaniel Chastain claims that he used anonymous hot wallets and accounts on OpenSea itself to purchase 45 NFTs over the course of a few months that he knew in advance would be featured on the home page. He would then sell them for a profit after they became featured and rose in valu.<\/p>\n According to Angotti, the charges are not surprising:<\/p>\n \u201cMisappropriating your employer\u2019s confidential information is fraud, andonce you move the proceeds of that fraud through the monetary system, it\u2019s money laundering.\u201d<\/p><\/blockquote>\n In similar news today, the Commodity Futures Trading Commission, which regulates commodities rather than securities, is suing Gemini claiming the crypto exchange lied in their futures contract evaluation. The CFTC claimed that Gemini misled them in 2017. <\/p>\n