On Wednesday, June 1, 2022, United States Attorneys in the Southern District of New York, charged Nathaniel Chastain [former product manager at OpenSea, the largest nonfungible token marketplace] with insider trading. This is the first case of its kind regarding digital assets and conventional criminal investigations.
Specifically the Indictment once unsealed charged Chastain "with wire fraud and money laundering in connection with a scheme to commit insider trading in Non-Fungible Tokens, or 'NFTs', by using confidential information about what NFTs were going to be featured on OpenSea’s homepage for his personal financial gain" [Department of Justice, U.S. Attorney’s Office, Southern District of New York. Press Release - Former Employee Of NFT Marketplace Charged In First Ever Digital Asset Insider Trading Scheme. (Accessed June 1, 2022).
In a statement from U.S. Attorney Damian Williams, he stressed: "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." [Id].
In a similar vein, FBI Assistant Director-in-Charge Michael J. Driscoll added: “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. 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.” [Id].
At the heart of this Indictment is the prosecutions claim that "Chastain bought 45 NFTs through anonymous hot wallets and anonymous accounts on OpenSea and then sold them for a profit shortly after. He allegedly bought them shortly before they were featured on the OpenSea marketplace homepage and sold them for a profit right after. As the product manager, it would have been in his power to choose which NFTs were featured, giving him direct access to the insider information that he, himself, created." [Ivy, K. Former product manager at OpenSea charged with insider trading. (Accessed June 1, 2022)].
More specifically, the Indictment alleges:
From at least in or about June 2021 to at least in or about 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.
[Press Release - Former Employee Of NFT Marketplace Charged In First Ever Digital Asset Insider Trading Scheme. Supra].
The charges against Chastain carry a maximum sentence of 20 years in prison. [Note: if found guilty, the sentence will be imposed by the Judge, and this maximum sentence is set by the US Congress and is provided for informational purposes. The accused is presumed innocent until proven guilty in a Court of Law]. At present, this case is being handled by the Office’s Securities and Commodities Fraud Task Force and Assistant U.S. Attorneys Thomas S. Burnett and Nicolas Roos are currently in charge of the prosecution. [See, e.g. Press Release - Former Employee Of NFT Marketplace Charged In First Ever Digital Asset Insider Trading Scheme. Supra].