Former OpenSea executive charged with NFT insider trading

Representative image.

In what’s considered to be the first indictment of insider trading in non-fungible tokens (NFTs), the former head of products at US-based NFT marketplace Open Sea has been charged by the United States Department of Justice with one count of wire fraud and one count of money laundering.

What we know

According to the Department of Justice, Nathanial Chastain used confidential information about what NFTs, which are financial securities consisting of digital data, were going to be featured on OpenSea’s homepage for his personal financial gain. He was subsequently arrested.

“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,” US Attorney Damian Williams said.

Chastain sold dozens of NFTs with prior knowledge

From June 2021 to 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.

He then sold them at a profit two to five times the original purchase price using anonymous digital currency wallets and anonymous accounts on OpenSea.

Federal Bureau of Investigation's Assistant Director-in-Charge Michael J. Driscoll 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,” he said.

Each of the charges carries a potential maximum sentence of 20 years in prison.

Meanwhile, OpenSea has admitted that an employee used inside knowledge to outsmart the market, and the company’s CEO Devin Finzer publicly accepted Chastain’s resignation in a blog post.

At the time, Finzer claimed that OpenSea put new rules in place to protect itself against such wrongdoing.