After an insider trading incident, a court has charged the former head of product at NFT marketplace OpenSea with wire fraud and money laundering.
OpenSea Employee Charged With Insider Trading
Nathaniel Chastain was detained in New York City on Wednesday morning. According to a press release issued by the Department of Justice on Wednesday, he will be presented in the US District Court for the Southern District of New York.
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Chastain was previously accused of purchasing NFTs with secret Ethereum wallets based on confidential knowledge that they would be published on OpenSea’s home page soon. According to the indictment, he was in charge of deciding which NFTs would be shown on the homepage. According to the DOJ’s accusation, he sold these works for two to five times their initial purchase price between June and September 2021, shortly after the value rose from a front-page feature.
The actions were compared to frontrunning and insider trading, which are activities when a person profits from non-public knowledge. Traditional financial markets restrict these practices, but it was unclear how those regulations would apply to the NFT sector.
The press release by the Department of Justice further explains that Mr. Chastain used “confidential information about what NFTs were going to be featured on OpenSea’s homepage for his personal financial gain.”
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Nate Chastain, the former OpenSea Head of Product, was previously fired, as reported by TechCrunch. Chastain was accused of buying NFT collections ahead of schedule since he knew they were set to be showcased prominently on OpenSea’s homepage. Other NFT buyers investigated his transactions on the Ethereum blockchain and uncovered his actions.
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Chastain was quickly fired by OpenSea after the claims were proven to be true, yet he has remained active in the NFT community, particularly on Twitter. The startup stated that it did not have clear procedures barring this type of behavior prior to the incident, but that it has now implemented new staff regulations.
Insider Trading Laws Will Apply To Everyone
The severity of the accusations was further underlined by U.S. Attorney Damian Williams, who stated:
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.
NFTs, too, are not exempt from insider trading regulations, according to FBI Assistant Director-in-Charge Michael J. Driscoll. He stated,
In this case, as alleged, Chastain launched an age-old scheme to commit insider trading by using his knowledge of confidential information to purchase dozens of NFTs in advance of them being featured on OpenSea’s homepage.
With the emergence of any new investment tool, such as blockchain supported non-fungible tokens, there are those who will exploit vulnerabilities for their own gain. The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way.
According to an indictment filed in federal court in Manhattan, Chastain carried out the actions from June to September 2021, using anonymous digital currency wallets and accounts at OpenSea.
Following the allegations in September of last year, OpenSea issued a blog post acknowledging Chastain’s activities.
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