OpenSea staffer charged with insider-trading of NFTs
From Non-Fungible Tokens to No Freedom, Twit, if convicted
A now-former product boss at a top NFT marketplace was arrested and charged with wire fraud and money laundering in the first-ever insider-trading case involving the digital tokens.
Nathaniel Chastain, 31, was employed at OpenSea, the largest online bazaar of its kind, from January to September 2021. OpenSea is essentially a place where people buy and sell NFTs of things; NFTs being not much more than an electronic receipt on a blockchain in practice but that's another story.
Chastain resigned from his position as head of product after his employers learned he was secretly purchasing, using anonymous accounts, numerous NFTs of cartoon images and artwork knowing the content was about to be featured on OpenSea's marketplace, it is claimed.
When the material was highlighted on the site and the tokens rocket in value, Chastain would then sell the NFTs at much higher prices than he had bought them for, pocketing the profits, it is alleged. As an employee, Chastain knew in advance when stuff was going to be spotlighted.
"NFTs might be new, but this type of criminal scheme is not," Damian Williams, an attorney for the Southern District of New York, said this week. "As alleged, Nathaniel Chastain betrayed OpenSea by using its confidential business information to make money for himself. [The] charges demonstrate the commitment of this office to stamping out insider trading – whether it occurs on the stock market or the blockchain."
OpenSea's co-founder and CEO Devin Finzer commissioned a third party to investigate incidents of insider trades last year.
"As the world's leading web3 marketplace for NFTs, trust and integrity are core to everything we do," a company spokesperson told The Register in a statement.
"When we learned of Nate's behavior," they further claimed, "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."
Chastain was accused of setting up various secret cryptocurrency wallets to buy the NFTs before they were featured on OpenSea, and was apparently spotted when they were sold and profits were transferred into his own account:
Hey @opensea why does it appear @natechastain has a few secret wallets that appears to buy your front page drops before they are listed, then sells them shortly after the front-page-hype spike for profits, and then tumbles them back to his main wallet with his punk on it?
— 0xZuwu.eth 🧪 (@0xZuwu) September 14, 2021
He had a good idea ahead of time which images could be sold at higher prices because he was responsible for choosing which ones to go up on OpenSea's homepage. When the NFTs went live, traders could then bid for them. Chastain often resold the assets for two-to five-times their initial purchase price, it's claimed.
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"In this case, as alleged, Chastain launched an age-old scheme to commit insider trading by using his knowledge of confidential information to purchase dozens of NFTs in advance of them being featured on OpenSea's homepage," FBI assistant director-in-charge Michael Driscoll involved in the Department of Justice's investigation, said.
"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."
Chastain was charged with one count of wire fraud and one count of money laundering; each charge carries a maximum sentence of 20 years in prison. ®