Former OpenSea Employee Charged with First-Ever NFT Insider Trading Case

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It had been barely three weeks since TimesNext had reported news about insider trading issues in the crypto market. And on Wednesday, federal prosecutors launched the first-ever insider trading case involving digital assets. It alleged a former NFT marketplace employee exploited sensitive information to buy NFTs before being promoted on the homepage and soared in value.

An NFT, or Non-Fungible Token, is a non-replicable proof of ownership for a crypto asset exchanged on the Ethereum blockchain.

Yesterday, Nathanial Chastain, a former product engineer for OpenSea, the leading NFT marketplace, was arrested and charged with wire fraud and money laundering.

The Allegations

According to the accusation, he bought roughly 45 NFTs anonymously shortly before they were highlighted on OpenSea’s homepage, then traded them for between two and five times their original price when they appreciated in value.

“NFTs are may be new, but this sort of illegal scheme is not,” said Damian Williams, US Attorney of the Southern District of New York, on Wednesday. “Today’s accusations demonstrate this Office’s commitment to countering insider trading, whether it takes place on the stock market or on the blockchain.”

Chastain was in charge of selecting NFTs to be published on OpenSea’s site as part of his job. The list of NFTs to be highlighted was kept secret by the platform until they were featured on OpenSea’s homepage. The price customers were likely to give for that NFT and other NFTs minted by the same NFT creator often increased significantly once featured on OpenSea’s platform.

From at least June 2021 through at least September 2021, Chastain surreptitiously purchased dozens of NFTs using OpenSea’s confidential business information regarding which NFTs would be highlighted on its homepage. 

The Securities and Commodities Fraud Task Force of the Office is investigating this matter. The prosecution is led by Assistant US Attorneys Thomas S. Burnett and Nicolas Roos.

The charges in the allegations are only accusations, and the defendant is assumed innocent until and unless proven guilty, wrote the US Attorney’s Office.

OpenSea’s Response

Last September, OpenSea admitted that one of its employees had flipped NFTs featured on the homepage using confidential information.

NFTs allow us to own things (including game merchandise, digital art, concert tickets, or collectibles) in the virtual world as we own them in the physical world. It profoundly alters the Internet to necessitate strong principles, well-organized behavior, and openness wrote OpenSea in its blog post.

“We aim OpenSea to be a fair playing field for buyers, traders, creators, collectors, developers, and anyone new to the industry as a marketplace at the vanguard of this new environment. We appreciate our community’s support and will continue to invest in processes and rules that ensure our platform remains open and transparent. As we develop our policies and improve transparency in all we do, we’ll continue to publish proactive updates,” the post added.

“We will need to embed trust and transparency into everything we do for a new, more open internet that rewards artists and collectors,” OpenSea co-founder Devin Finzer stated at the time. “We’re determined to do the right thing for our users and restore the community’s faith in us.”

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Rucha Joshi, currently managing a team of over 20 content writers at TimesNext is fueled by her passion for creative writing. She is eager to turn information into action. With her hunger for knowledge, she considers herself a forever student and a passionate leader.

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