Major Conviction in NFT Insider Trading Case

Ex-OpenSea product manager, Nathaniel Chastain, was found guilty of wire fraud and money laundering on Wednesday in what prosecutors are calling the first digital asset insider trading case. Each count carries a maximum sentence of 20 years in prison.

OpenSea describes itself as “the world’s first and largest web3 marketplace for NFTs and crypto collectibles.” NFTs, otherwise known as non-fungible tokens, are data files, like art, stored and traded on a blockchain. Part of Chastain’s job was to decide which NFTs would be featured on OpenSea’s homepage. A feature on the OpenSea homepage typically increased an NFT’s value considerably. According to prosecutors, OpenSea kept its plans to feature specific NFTs secret until they were displayed on the homepage.

Chastain’s conviction was based on his use of insider knowledge of which assets OpenSea planned to feature on its homepage to trade NFTs. According to the indictment, Chastain sometimes bought and sold NFTs just minutes or hours before and after they were featured. He was accused of making more than $50,000 in illegal profits from this scheme between June and September of 2021. He argued in court that he did not know that OpenSea considered his knowledge of future NFT features to be confidential information. But prosecutors pointed out that Chastain’s use of anonymous accounts to make the trades indicated that he knew what he was doing was wrong.

Because Chastain was charged with wire fraud rather than securities fraud, prosecutors were not tasked with proving that NFTs are securities. The success of this strategy could help future insider trading prosecutions involving digital assets.

“Although this case involved trades in novel crypto assets, there was nothing particularly innovative about his conduct — it was fraud,” said Manhattan U.S. Attorney Damian Williams in a statement.

This case is just one in a series of cases the U.S. Attorney’s office in Manhattan has pursued related to digital assets.

Additional Reading

Ex-OpenSea manager convicted in NFT insider trading case, Reuters (May 3, 2023)

First NFT Insider-Trading Trial Leads to Criminal Conviction, Bloomberg (May 3, 2023)

Former Employee of NFT Marketplace Charged In First Ever Digital Asset Insider Trading Scheme, The United States Attorney’s Office, Southern District of New York (June 1, 2022)

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