Quick take:
- Nathaniel Chastain was accused of secretly buying 45 NFTs based on confidential information and selling them for profit.
- OpenSea requested and accepted Chastain’s resignation in September 2021.
- Chastain is charged with one count of wire fraud and one count of money laundering.
US prosecutors in New York announced today the unsealing of an indictment in Manhattan federal court, charging former OpenSea head of product, Nathaniel Chastain, with wire fraud and money laundering connected to an NFT insider trading scheme.
Chastain was was arrested this morning in New York and will be presented today in the United States District Court for the Southern District of New York.
Chastain’s NFT insider trading scandal came to light last year when Twitter users flagged suspicious activity involving his NFT transactions. In a blog post, OpenSea co-founder and CEO, David Finzer, wrote that the company “immediately commissioned a third party to conduct a thorough review of the incident,” and “requested and accepted” Chastain’s resignation.
As part of his role in OpenSea, Chastain was responsible for selecting NFTs to be featured on OpenSea’s homepage. The featured NFTs were kept confidential until they appeared on OpenSea’s homepage. After an NFT was featured on the homepage, its price and the prices of NFTs by the same creator would increase substantially due to demand from willing buyers.
In what the US Department of Justice claims is the first-ever case of insider trading involving NFTs, Chastain was accused of secretly buying 45 NFTs and selling them for profit based on confidential information that the NFTs were set to display on OpenSea’s front page before they appeared there publicly. He sold the NFTs for two to five times his initial purchase price.
“NFTs might be new, but this type of criminal scheme is not. As alleged, Nathaniel Chastain betrayed OpenSea by using its confidential business information to make money for himself. Today’s charges demonstrate the commitment of this Office to stamping out insider trading – whether it occurs on the stock market or the blockchain,” said U.S. Attorney Damian Williams.
“With the emergence of any new investment tool, such as blockchain supported 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,” added FBI Assistant Director-in-Charge Michael J. Driscoll.
According to the indictment, the insider trading scheme ran from June to September 2021. To conceal the fraud, Chastain made the NFT transactions using anonymous digital currency wallets and anonymous accounts on OpenSea.
Chastain is charged with one count of wire fraud and one count of money laundering, each carrying a maximum sentence of 20 years in prison. The indictment states that the charges are currently merely accusations until Chastain is proven guilty as he awaits trial and verdict in court.
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