A former OpenSea employee has been charged with insider trading by the FBI. Insider trading is one of the oldest and most prevalent white-collar crimes in existence, making this arrest the first routine legal instance used 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 New York City on suspicion of using confidential knowledge gained from his position working for the marketplace to his advantage. Specifically, he was charged with one count of wire fraud and one count of money laundering in connection with the scheme. As FBI Assistant Director Michael J. Driscoll put it, Chastain “[used] His knowledge of confidential information could buy dozens of NFTs before showing up on the OpenSea homepage. ”
In fact, Chastain doesn’t just know that NFTs will eventually appear on OpenSea’s marketplace. Based on his role as the site’s product manager, he is responsible for selecting the NFTs that will eventually appear on the site’s homepage. This gave him a unique opportunity to directly manipulate the market—and he seized it. Typically, once an NFT appears on OpenSea’s homepage, its price rises significantly, giving Chastain an unfair advantage in the exchange market. Chastain reportedly ran from June 2021 until about September of the same year. During this time, Chastain allegedly purchased dozens of NFTs, then displayed them on OpenSea’s homepage, and sold them as soon as their prices on the open market rose. This allows Chastain to earn up to five times his initial investment in these NFTs. He did so in secrecy, presumably using a burner wallet to store NFTs that he intended to flip for profit.
If Chastain is convicted, he faces up to 20 years in prison on each count. The landmark investigation was conducted in collaboration with the FBI and the newly formed National Cryptocurrency Enforcement Team of the U.S. Department of Justice’s Criminal Division, which was established earlier this year. With rampant thefts and scams in space, we may finally see the bad guys brought to justice in the years to come.