Major OpenSea employee fraud may lead to SEC treating ALL NFTs as securities by default
Get ready for some regulations, investigations, and scrutiny NFT friends
The Head of Product for the leading NFT platform OpenSea, Nate Chastain, has been accused of using insider information to front run NFT drops, potentially committing criminal securities fraud in the process. The platform addressed the allegations on a blog post on Wednesday, saying that they were disappointed to hear about the allegations, that a third party was going to conduct an investigation, and that actions of this sort go against their values. What’s shocking however is that they only now, after this incident occurred, put in place policies prohibiting employees from using insider information to purchase and sell NFTs. This oversight is glaring and opens up the company to massive scrutiny from every angle, especially as more institutional players get involved in crypto.
On his popular YouTube Channel, This Week In Startups, entrepreneur, angel investor and co-host of the All In Podcast, Jason Calacanis, talked about this issue, bringing up just the tip of the iceberg of issues the SEC, FBI, and other enforcement agencies are going to look into (slightly edited for clarity, source):
If OpenSea’s head of product was involved in this, how many of the other 50 employees were doing the same thing? That’s immediately where your mind goes. When did the CEO know? When did the board know? What insurance do they have? What class action lawsuits are about to come? And did they commit securities fraud? Because if they knew about this, and then they raised money, and it wasn’t disclosed…Or, if [the accused] owns shares in this company, and they’re profiting this way and they’re profiting two different ways, and they know they’re committing fraud, and…if they’re involved in the fundraising in any way…my lord, they’re basically running a giant securities fraud here. That’s the worst potential here.
Yikes. With the SEC already gearing up to take on DeFi and crypto products from Coinbase, this incident just provides them more fodder and justification for getting involved in the NFT space since this particular set of facts fit precisely into what the SEC’s main purpose is which is to prevent fraud in the market. My prediction is that within this calendar year, the SEC will hold that by default, NFTs will be considered securities, with potentially some exemptions if the crypto lobby is able to get a few in (potentially allowing for non-security exemptions for NFTs that are tied to a specific physical product?). In any case, OpenSea’s potential securities fraud is very likely the perfect opening for the SEC to further regulate the space. Stay tuned.
