OpenSea‘s Former Product Designer Has Been Charged With NFT Inside Trading

[TL;DR]
In the first-ever regulatory action of the sort on the NFTs space, the Department of Justice has charged Nathaniel Chastain ex OpenSea Employee with insider trading.

According to the indictment, the defendant who was a product manager on OpenSea, an NFTs marketplace at the time, was in charge of choosing NFT artworks to be featured on the company's home page.

Normally, when an NFT takes center stage like that on the platform, it immediately surges in price likewise other pieces by the same artist. The DoJ alleges that Chastain, who was in charge of choosing these NFTs, used his insider information to purchase tokens in the concerned category shortly before the listing. Afterward, when the prices surged, he sold his pieces and cashed out double or even five times the amount of his initial investment.

Chastain had indulged in this fraudulent activity for over 3 months from June to September 2021 covering his tracks by using multiple anonymous accounts and wallets. In this manner, the defendant had purchased 45 NFTs on 11 different occasions.

Consequently, on June 1st, the Department of Justice arrested and charged him with money laundering and wire fraud, both charges for which the maximum sentence is 20 years in jail.

Nathaniel Chastain pleaded not guilty later that same day and was let go after paying bail of $100,000.
Read on for the full details.

Keywords: OpenSea employee, insider trading, Former OpenSea employee, first-ever NFT insider trading, Nathaniel Chastain, Nathaniel Chastain OpenSea.


Nathaniel Chastain, Former Employee of OpenSeas charged with insider trading.

In a press release on the first day of this month, the Department of Justice announced that it had indicted and arrested Nathaniel Chastain, formerly an employee of OpenSea, for insider trading on said platform.

Per the release, the defendant had used the company's confidential information to make profits for himself contrary to his obligations as an employee of the Digital Assets platform.


OpenSea's Routine Homepage NFTs Feature.

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Apparently, Chastain was a product manager for OpenSea when the alleged crime happened. Based on the indictment unsealed on June 1, OpenSea routinely displayed different NFT artworks on their home page. This gave the work prominence and publicity causing the NFTs to surge in price. Other pieces by the chosen artists also tend to experience an increase in price during that period as well.


The information about which artwork gets center stage on the platform, however, is kept private till each artwork goes up per OpenSea policy.
Moreover, the alleged fraudster was assigned with selecting the artwork to be displayed each time.

The DoJ accused Chastain of taking undue advantage of this insider information by purchasing the chosen NFTs or others from the same artist just before they get listed. That way, when the price rose, he would sell them and make a handsome profit.

The charges against Chastain stated that he had done this between June and September 2021. During this period, the 31-year-old defendant bought 45 NFTs, a total of 11 times, and sold them for an average of 2-5 times their cost price.
The unsealed indictment included a few noted instances including:

- One on August 2, involved an NFT, "The Brawl 2" where he bought 4 NFTs and sold them for double afterward.
- Another, a week later on August 9, involved 10 pieces of the "Flipping and Spinning" NFTs collection. This time, he sold his collection at an average of 250% above what he paid for them.
- And the third occasion on September 14 was where he traded "Spectrum of a Ramenfication Theory '' along with others by the same creator.

To conceal his actions, Mr. Chastain made the transactions from various nameless accounts on OpenSea and multiple anonymous crypto wallets on the Ethereum BlockChain.

Attorney Damian Williams of New York explained that although NFTs are a fairly new invention, insider trading is not. He also stated that Chastain's alleged actions constitute a serious breach of trust. Majorly because he signed an agreement with the BlockChain-based company which his actions violated.
Williams emphasized the FBI's commitment to stamping out all forms of insider trading regardless of where it is found; on the stock market or in the digital world.


Details of Chastain's Indictment

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The charges against him are as follows:

One count of wire fraud, and
One count of Money Laundering.

Both of which have a sentence of 20 years max. However, Nathaniel Chastain pleaded not guilty and he walked out the same day after paying a bail of $100,000.

This case is the first of its kind to be officially charged in the NFTs space.
Michael J. Driscoll, assistant Director-in-chief of the FBI affirmed that with the advent of any new technology, bad actors will seek to exploit it. Nevertheless, he affirmed that the FBI will vigorously pursue and bring to book any such cases they find.


Decentralized Finance and Centralized Governments.

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The decentralized nature of digital currency and other digital assets has been an issue for central authorities all over the world since the new technology began to gain ground.
Some of them are totally against crypto and all it stands for going as far as banning or restricting it in their countries.

Among those nations where crypto is banned are:
Bangladesh
Nepal
Algeria, etc.


Some like El Salvador have fully embraced cryptocurrency to the point of making the digital currency a legal tender.

Still, others have taken another tack entirely by simply regulating the usage of the technology in their country. The US is one of the latter. For example, President Biden signed an Executive order on March 9 this year that focuses on the responsible development of digital assets.

The order stems from a need to protect businesses and individuals' investments, the government, and the world economy as well. It aims to mitigate the actions of malicious actors and fraudsters and maintain America's leadership position in the global financial system while also providing affordable financial services for US citizens.

The US government sees the importance of keeping up with the tech world especially when it comes to digital assets. As such they are doing everything possible to mitigate the risks posed by its largely unregulated nature.


In closing.

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For so long, Bad actors have taken advantage of the decentralized and unregulated quality of digital assets to cash out from various illegal activities and scams.

The Chastain Case has proven once and for all that though decentralized, Digital assets will not evade the regulation of government agencies like the Department of Justice and FBI for long. This first successfully indicted case of insider trading will likely place the crypto-verse and NFT space on high alert and mitigate future repetitions of such fraudulent cases.






Author: Gate.io Observer: M. Olatunji
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