A former OpenSea employee has been charged with insider trading by the FBI. Insider trading is one of the oldest and most pervasive white-collar crimes in existence, making this arrest one of the first instances of conventional laws being applied to punish bad actors in the NFT space.
The nature of the crime
Earlier this morning, former OpenSea product manager Nathaniel Chastain was arrested in the city of New York for allegedly using confidential knowledge gained from his post working for the marketplace to his advantage. Specifically, he’s been charged with one count of wire fraud, and one count of money laundering, which have been linked to the scheme.
As stated by FBI Assistant Director-in-Charge Michael J. Driscoll, Chastain “[used] his knowledge of confidential information to purchase dozens of NFTs in advance of them being featured on OpenSea’s homepage.”
Manipulating the market
In fact, Chastain wasn’t just aware of what NFTs would end up featured on OpenSea’s marketplace. He was in charge of selecting what NFTs would end up featured on the site’s homepage, as per his responsibilities working as a product manager for the website.
This gave him the unique opportunity to directly manipulate the market — and he took it. Typically, once an NFT gets featured on OpenSea’s homepage, it sees a substantial increase in price, giving Chastain an unfair advantage in the trading market.
Reportedly, Chastain kept this up from June 2021 until roughly September of the same year. During this span of time, Chastain allegedly purchased dozens of NFTs before he featured them on OpenSea’s homepage, immediately selling them once their prices increased on the open market. This netted Chastain profits up to five times as much as his initial investment in these NFTs. He did so in secret, presumably using a burner wallet to store the NFTs he intended to flip for a profit.
Should Chastain be found guilty, he will serve a maximum of 20 years in prison for each count.
This landmark investigation was handled in collaboration with the Federal Bureau of Investigation, as well as the National Cryptocurrency Enforcement Team, a newly-formed arm of the US Department of Justice’s Criminal Division established earlier this year. With rampant thefts and scams occurring in the space, we may finally see bad actors brought to justice in the years to come.