NFTs just made history, although perhaps not in the way their advocates would have liked.
Disgraced former OpenSea product manager Nathaniel Chastain was arrested in New York City on Wednesday for insider trading of NFTs. In its statement, the Department of Justice called it the “first ever digital asset insider trading scheme.”
Chastain has been charged with one count of wire fraud and one count of money laundering as a result of his NFT insider trading scheme.
NFTs, or non-fungible tokens, are digital assets on a blockchain that represent artwork or other forms of media. OpenSea is the largest NFT marketplace platform, and is where the vast majority of aftermarket sales occur.
According to the U.S. Attorney for the Southern District of New York Damian Williams, Chastain used his insider knowledge of what NFT projects were going to be featured on the OpenSea platform and then exploited that information for personal financial gain.
As part of his position at OpenSea, Chastain was responsible for picking which NFT projects to feature on the marketplace’s frontpage. According to the U.S. attorney, from June 2021 to September 2021, Chastain utilized this confidential information about which NFTs would be featured to secretly acquire NFTs using anonymous accounts before they were placed on the homepage. This allowed Chastain to purchase these digital assets at low prices, before they spiked in value as a result of appearing on the frontpage of OpenSea. Chastain reportedly netted two-to-five times his purchase price for the NFTs.
“NFTs might be new, but this type of criminal scheme is not,” said U.S. Attorney Damian Williams in a statement. “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.”
The U.S. government has recently signaled that its taking cryptocurrency-related crimes much more seriously. In February, a married NYC couple were arrested for their alleged involvement in laundering billions of dollars that were stolen in the 2016 Bitfinex hack.
If convicted, Chastain faces a maximum of 20 years in prison.