US prosecutors in Manhattan on June 1 charged an ex-product manager at OpenSea, the biggest online marketplace for nonfungible tokens (NFTs), with insider trading. That is the first such case that involves digital assets.
Nathaniel Chastain, 31, who lives in Manhattan was accused of secretly acquiring 45 NFTs on 11 different instances based on confidential information that these tokens, or others by the same developer, would soon be featured on OpenSea’s home page.
Prosecutors insisted that Chastain selected which NFTs to feature, and sold his NFTs moments after they were featured, normally for two to five times what he paid. At one time, he supposedly more than quadrupled his money by buying the NFT “Spectrum of a Ramenfication Theory” on September 14, 2021, and selling it very early the next morning.
The prosecutors said that the scheme ran from June to September last year, with Chastain transacting via anonymous digital currency wallets and accounts hosted at OpenSea, also known as Ozone Networks Inc. U.S. Attorney Damian Williams in Manhattan explained in a statement:
“NFTs might be new, but this type of criminal scheme is not. Today’s charges demonstrate the commitment of this office to stamping out insider trading – whether it occurs on the stock market or the blockchain.”
Chastain Answers To The OpenSea Charges
Chastain pleaded not guilty on June 1 to wire fraud and several money laundering charges, each of these attracting a maximum 20-year prison term, before U.S. Magistrate Judge Barbara Moses in Manhattan. His bond was set at $100,000. Chastain’s lawyer David Miller commented in an email:
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“When all the facts are known, we are confident he will be exonerated.”
NFTs are unique digital assets showing ownership of files like images, artwork, text, and videos that are recorded on a blockchain. The NFT space totaled nearly $40 billion in 2021, and over $37 billion from January to April 2022. However, the transaction activity has been stabilizing, based on the blockchain data acquired from Chainalysis.
While commenting on the Chastain case, OpenSea said in a statement:
“When we learned of Nate’s behavior, we initiated an investigation and ultimately asked him to leave the company. His behavior was in violation of our employee policies and in direct conflict with our core values and principles.”
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