The US Department of Justice has filed charges against a former product manager at leading NFT marketplace OpenSea for wire fraud and money laundering in what the DoJ called the “first-ever digital asset insider trading scheme.” The DoJ alleges that the former executive broke the trust of the NFT marketplace by illegally profiting from confidential information.
According to the press release by the DoJ on Wednesday, Nathaniel Chastain, as part of his job, selected NFTs to be advertised on the OpenSea home page. Chastain is accused of using this confidential information of NFTs to be promoted on the home page to purchase these NFTs beforehand and sell them after their prices surged following the hype they received from featuring on the homepage of the leading NFT marketplace.
“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,” said US Attorney Damian Williams.
Between June and September 2021, Chastain allegedly used this confidential information to flip several NFTs. To cover his tracks, Chastain reportedly used unhosted crypto wallets and anonymous accounts on OpenSea.
Speculations of Chastain’s illicit activities first came to light in September last year when an NFT tweep traced the transactions and asked, “Hey @opensea why does it appear @natechastain has a few secret wallets that appears to buy your front page drops before they are listed, then sells them shortly after the front-page-hype spike for profits, and then tumbles them back to his main wallet with his punk on it?”
The revelation led the leading NFT marketplace to enact work rules prohibiting the acquisition of NFTs during the time they are promoted on OpenSea and restrict the purchase of NFTs using insider information. Notably, Chastain resigned from his position not too long after.
As previously stated, Chastain is charged with one count of wire fraud and one count of money laundering. The former OpenSea executive is looking at a maximum of 20 years jail time for each count. “The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way,” said Michael J. Driscoll, FBI Assistant Director-in-Charge of the New York Office, which was part of the investigation.
While several crypto detractors have argued that the anonymity offered by cryptocurrencies makes it easy for criminals to conceal their crimes, the US DoJ continues to prove otherwise. As reported in March, the DoJ had apprehended and charged Ethan Nguyen and Andre Llacuna for Fraud after rugging investors of their NFT project Frosties. Thomas Fattorusso, the special agent in charge of the investigation, warned criminals that law enforcement was setting up special units working to tackle crime in the world of crypto.