In what they claim is the first insider trading case involving non-fungible tokens, or NFTs, US authorities have charged a former manager at a digital exchange platform with fraud and money laundering.
Last year, Nathaniel Chastain was working as a product manager at OpenSea in New York when he secretly purchased dozens of NFTs that were due to be displayed on the platform’s home page, according to federal authorities.
After getting star billing on the OpenSea website, Chastain, 31, went on to sell the NFTs for two to five times the initial amount, according to the prosecution case against him.
“While NFTs are new, this type of illegal scheme is not,” said US Attorney Damian Williams in a statement. “Nathaniel Chastain betrayed OpenSea by profiting from the company’s confidential business knowledge.”
According to Chainalysis Inc., a blockchain analytics business, the NFT market was worth almost $40 billion in 2021 and more than $37 billion from January to April 2022, albeit transaction activity has been moderating.
In a statement, OpenSea said, “When we learned of Nate’s behaviour, we launched an inquiry and ultimately asked him to leave the company.” “His actions were against our personnel policies and directly against our basic values and principles.”
Prosecutors said Chastain was detained in New York on Wednesday on charges of wire fraud and money laundering, each of which carries a potential sentence of 20 years in jail. He was eventually released on bail after filing a non-guilty plea, according to US media.
Prosecutors called the arrest the “first-ever insider trading bust involving digital assets. “There are people who will exploit vulnerabilities for their personal gain with the advent of any new investing tool, such as blockchain enabled non-fungible tokens,” FBI associate director-in-charge Michael Driscoll said.
According to the criminal complaint, part of Chastain’s duty was to choose NFTs to be displayed on OpenSea’s site, with the picks kept secret because prices generally soared once they got top billing.