Ex-OpenSea boss convicted in first-of-its-kind case of insider trading of NFTs • Registeret
The former chief product officer at OpenSea, the largest online marketplace for non-fungible tokens (NFTs), has been convicted of wire fraud in the US Department of Justice’s first-ever prosecution for insider trading in digital assets.
Nathaniel Chastain, 32, was hired at New York startup OpenSea from January to September 2021 at the height of the NFT craze. Last year, he was accused of secretly creating anonymous accounts to capture precious digital cartoon images he knew would be displayed on OpenSea’s marketplace.
Chastain bought the tokens before they were highlighted by the startup, waited for them to list and for the price to jump due to demand, then sold the digital assets for more than he paid for them, pocketing the profits.
OpenSea CEO Devin Finzer launched an external investigation into these activities, which led to Chastain being fired for violating employee policies. The feds were notified, and Chastain was charged with one count of wire fraud and one count of money laundering.
Now, Chastain has been found guilty of both charges by a jury, according to court documents [PDF] released Thursday.
“Nathaniel Chastain leveraged his advanced knowledge of which NFTs would be displayed on OpenSea’s website to make profitable trades for himself,” Damian Williams, the attorney for the DoJ’s Southern District in New York, declared in a statement this week.
“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. .”
Chastain reportedly reaped just $57,000 in profits from flipping NFTs into Ether, selling the tokens for up to five times the price he paid.
Chastain tried to get the charges dismissed by arguing that to charge for insider trading, authorities would have to prove that crypto assets are a form of securities or commodities — an unresolved legal issue. However, the judges disagreed and proceeded with a jury trial in federal court in Manhattan.
“In this case, as alleged, Chastain launched an ancient scheme to commit insider trading by using her knowledge of confidential information to purchase dozens of NFTs before they were featured on OpenSea’s website,” FBI Asst. Michael J. Driscoll previously explained in a statement.
“With the rise of any new investment tool, such as blockchain-backed non-fungible tokens, there are those who will exploit vulnerabilities for their own gain. The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way.” he warned.
Each charge carries a maximum sentence of 20 years in prison. Chastain is expected to be sentenced in August and is unlikely to face the maximum sentence. ®
