In May of 2022, Former OpenSea employee, Nathaniel Chastain, was indicted on one count of wire fraud, in violation of 18 U.S.C. § 1349, and one count of concealment money laundering, in violation of 18 U.S.C. § 1956(a)(1)(B)(i). The government essentially accuses Chastain of using his insider knowledge to profit from NFTs featured on OpenSea's homepage. Chastain was responsible for selecting NFTs that would be featured on OpenSea’s homepage. The government alleges Chastain abused his position by buying featured NFTs and then selling it at a profit using anonymous accounts. Crypto Criminal Defense Lawyer Blog
In February 2023, the government filed notice of intent to call expert witnesses at trial. According to the Government Expert Notice, in intends to call Professor Daniel Taylor to present a three-part opinion. First, he will explain to the jury that information about upcoming featured NFTs was economically valuable as it represented expected future demand. Second, he will offer his opinion that the value of this information did not diminish simply because OpenSea did not sell or trade on it. Professor Taylor would also offer the jury examples of companies that maintain the confidentiality of information to serve valuable business purposes, especially in the context of running marketplaces. Lastly, Professor Taylor would discuss the importance of trust in functioning marketplaces and how perceptions of unfair advantages can lead to users leaving the market. He will argue that this concept is relevant to OpenSea's online marketplace and that the company's reaction to the accused's misconduct supports this view. The government maintains:
Professor Taylor’s opinion is narrow. He will not opine that information about upcoming featured NFTs was “confidential business information” or try to offer a definition of that term.1 He also will not opine on whether or not OpenSea ultimately lost users or traffic, or suffered some long-lasting erosion of trust, from Chastain’s misconduct. To the extent he addresses any events after Chastain’s trading was revealed, it is solely to corroborate his view that the concept of “trust” in the academic literature about markets applies in the context of OpenSea’s business. Government Motion
On March 24, 2023, Chastain’s defense team filed its initial expert notice stating they intend to call Dr. Matthew Edman and Professor Douglas Skinner. Dr. Edman runs a private cybersecurity firm specializing in cryptocurrency and digital forensics, and Professor Skinner is a Professor of Accounting at the University of Chicago. Defense counsel plat to call Dr. Edman to testify that Chastain did not try to hide his actions by using VPNs or cryptocurrency scrambling tools. The defense plans to call Professor Skinner to discuss the meaning of "confidential business information" and introduce economic concepts like "fundamental information" and "informed trading."
The government has filed motions to exclude both defense experts arguing that arguing that:
Testimony from both experts should be precluded in its entirety, or at a minimum, strictly curtailed. Dr. Edman’s testimony is, fundamentally, an effort to have an expert tell the jury that Chastain did not try to hide his activities. That is not a proper subject of expert testimony: no expert can get inside the defendant’s head, and it is the jury’s job to assess Chastain’s intent. Professor Skinner, for his part, also goes well outside the bounds of appropriate expert testimony. His proposed testimony about confidential business information directly intrudes on the role of the court to explain the law and the jury to apply the law to the facts, and his testimony about other economic concepts will serve only to distract the jury from the relevant factual issues in the case.
According to the Edman Notice, Dr. Edman intends to opine on what Chastain intended, or did not intend, when he took certain actions to engage in insider trading. Dr. Edman plans to claim that Chastain “did not attempt to obfuscate his identity or conceal his OpenSea activity by using a VPN or other anonymizing technology,” and that Chastain “did not attempt to obfuscate his OpenSea activity by laundering cryptocurrency funds through the use of mixers, non-KYC exchanges, or other techniques often associated with illicit activity.” Ex. D, at 2-4. In offering these opinions, Dr. Edman also intends to testify about what, in his view “individuals engaging in illicit activity will attempt” to do to cover their tracks. Id. Separately, Dr. Edman also plans to opine that it is “common for sophisticated cryptocurrency users to use multiple wallets and wallet addresses to store and transact with their cryptocurrency,” and to analyze how the Defendant used different wallets and wallet addresses in connection with his activity on OpenSea. Id.
Dr. Edman plans to opine that various actions Chastain took, and did not take, establish that Chastain was not attempting to obfuscate his identity or conceal his OpenSea activity. (Ex. D at 2-4). This testimony, which is tantamount to opinion testimony about Chastain’s intentions and mental state, is entirely improper and must be precluded. Similarly, Dr. Edman’s opinions that certain behaviors are “common” for “sophisticated cryptocurrency users” and thus not indicative of intent to conceal one’s online activity, is not scientifically based and is unhelpful to the finder of fact, as it risks significant confusion of the issues. Dr. Edman’s testimony should be excluded, or in the alternative, severely curtailed to avoid confusion of the issues and misleading the jury.
Professor Skinner proposes to address a grab-bag of economic concepts, with little regard for whether some opinions intrude on the role of the court and the jury, and whether other opinions bear any reasonable relationship to the facts at hand. Viewed as a whole, his testimony is certain to drag the jury through confusing, and irrelevant, economic jargon that will muddy the straightforward legal and factual issues in the case. This Court should exclude that testimony in its entirety, or at a minimum strictly cabin it.
Government Opposition Motion
Defense counsel filed a motion in opposition arguing that:
The government has repeatedly emphasized in writing that it does not have to prove that information concerning soon-to-be-featured NFTs had inherent value to OpenSea. The government is wrong. And its legal position stands in stark contrast to relevant Supreme Court and Second Circuit precedent holding to the contrary. As made clear throughout its motion to exclude the testimony of Professor Skinner and Dr. Edman, however, the government cares less about proving the elements of the wire fraud statute, and more about enforcing its own view of integrity. To this end, the government’s arguments in support of exclusion are not only meritless, but frequently confusing and contradictory. Defense Response
The case is currently scheduled for a pretrial conference on April 20, 2023. Stay tuned for more on this upcoming trial.
This blog post was prepared with the assistance of ChatGPT-4 AI. Nothing in this post should be considered legal advice or the creation of an attorney-client relationship. This blog is strictly for informational purposes only.