First-ever digital asset insider trading criminal case brought against former Opensea employee
Non-Fungible Tokens, or NFTS, as they are better known as, have exploded in popularity across the globe over the last few years. However, they’re also a hotbed for crime and other nefarious activities, and as a new legal case shows, the authorities are rapidly running out of patience.
NFTs are tokens used to represent ownership of unique items such as art and real estate. They have become extremely popular amongst celebrities, where it almost seems like a contest amongst the celebs who can pay the most for these digital assets. Earlier this year Justin Bieber paid US$1.3 million (500 Ethereum) for a Bored Ape NFT. Bieber joined the list of many other celebrities who have paid significant amounts of money to own a coveted Bored Ape NFT, including Serena Williams, Gunna, Travis Barker, Stephen Curry and many more.
The largest online marketplace for the purchase and sale of NFTs, Opensea, hit an all-time high of US$5 billion in trading volume in January 2022. The online marketplace had its best day yet on January 31st, when the platform had a 24-hour trading volume of $233 million.
Now, the significant amounts of money involved with NFTs have allegedly tempted one of Opensea’s own employees to insider trading, using his privilege to access confidential information.
Last week, the United States Attorney for the Southern District of New York published a media release to say that former Opensea employee, Nathaniel Chastain, had been arrested after he allegedly “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”.
It is becoming clear that authorities are determined to make a point that they are well aware of illegal cryptocurrency activity.
“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.” – Damian Williams, US Attorney for the Southern District of New York, said.
Chastain allegedly took full advantage of his position at Opensea as he had control over which NFTs would be featured on OpenSea’s homepage. OpenSea kept confidential the identity of featured NFTs until they appeared on its homepage. After an NFT was featured on OpenSea’s homepage, the price buyers were willing to pay for that NFT, and for other NFTs made by the same NFT creator, typically increased substantially.
The allegations state that between June 2021 to at least September 2021, Chastain used OpenSea’s confidential business information about what NFTs were going to be featured on its homepage to secretly purchase dozens of NFTs shortly before they were featured. After those NFTs were featured on OpenSea, Chastain sold them at profits of two to five times his initial purchase price. To conceal the fraud, Chastain conducted these purchases and sales using anonymous digital currency wallets and anonymous accounts on OpenSea.
He is charged with one count of wire fraud and one count of money laundering, each of which carries a maximum sentence of 20 years in prison.