- A former OpenSea employee was charged with trading NFTs based on insider information by the Department of Justice.
- The first-ever NFT insider trading case was brought against Nathaniel Chastain, according to the complaint.
- "NFTs might be new, but this type of criminal scheme is not," U.S. Attorney Damian Williams said.
The Department of Justice has charged a former OpenSea employee in the first ever NFT insider trading case on Wednesday.
Nathaniel Chastain allegedly bought dozens of NFTs in advance of them being featured on OpenSea's homepage, the DOJ said. An NFT feature on OpenSea's website, which is the largest trading platform for the digital art collections, often benefits from an immediate and substantial increase in price, according to the DOJ.
The information Chastain used to buy the NFTs in advance of them being featured on OpenSea's website was confidential. Chastain was a former product manager at OpenSea and was responsible for selecting the NFTs to be featured on the website's homepage. OpenSea's practice is to keep its NFT features confidential until they are posted on the homepage.
With advanced knowledge of which NFTs would be featured on the website, Chastain allegedly purchased dozens of NFTs based on the confidential information from June 2021 through September 2021. After the NFTs were featured, Chastain sold them at profits of two to three times his initial purchase price.
In an attempt to cover his tracks, Chastain purchased the NFTs using anonymous cryptocurrency wallets and anonymous accounts on OpenSea. But Twitter sleuths were able to identify Chastain as the rightful owner of the anonymous accounts in September, and OpenSea said in a statement that it was aware of the insider trading. The NFT marketplace has since implemented new policies to prevent future insider trading among its employees.
"As the world's leading web3 marketplace for NFTs, trust and integrity are core to everything we do. 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," an OpenSea spokesperson said.
Chastain was arrested Wednesday morning and is being charged with wire fraud and money laundering, each of which carries a sentence of up to 20 years in prison.
"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," US attorney Damian Williams said.