Former OpenSea employee found guilty in first ever NFT insider trading trial
On May 3, Nathanial Chastain, a former product manager at the largest NFT (non-fungible token) marketplace, OpenSea, was found guilty of violating confidentiality procedures for selling NFTs at high profits, leading to the first-ever insider trading trial. digital assets to the end. Chastain was convicted of fraud and money laundering and is awaiting sentencing.
In his closing arguments on Monday, prosecutor Thomas Burnett said Chastain “abused his position at OpenSea to line his own pockets, and he lied to cover his tracks,” according to Reuters.
Chastain helped curate which tokens featured prominently on OpenSea’s website, often causing the assets to increase in price. While OpenSea’s company policy stated that featured tokens would not be released until they were published on the marketplace’s website, Chastain purchased the designated tokens in bulk and sold them after their identity was made public. His scheme made over $57,000 in profits, and his use of anonymous accounts to make illegal trades proved he knew what he was doing was wrong, according to prosecutors.
“This case will send NFT marketplaces back to the drawing board regarding their compliance policies and procedures — the foundation of the fraud theory is that Chastain breached a fiduciary or fiduciary duty to the source of his information,” said Philip Moustakis, attorney and partner at Seward & Kissel. “NFT marketplaces need to assess their risk in this regard and train their staff on the risk.”
Moustakis adds, “This theory of fraud has never been applied to an asset class outside of securities or commodities before — it’s not surprising that someone like Chastain would be taken aback by what he did.”
The charges against Chastain marked the first in a series of high-profile cases related to digital asset trafficking facilitated by the US Attorney’s Office for the Southern District of New York in 2022.
“Nathaniel Chastain leveraged his advanced knowledge of which NFTs would be displayed on OpenSea’s website to make profitable trades for himself,” US Attorney Damian Williams said in a statement. “Although this case involved the trading of new cryptoassets, there was nothing particularly innovative about his behavior – it was fraud. A jury has found Chastain guilty of using inside information for his own personal gain, and he is now serving time in federal prison.”.
