U.S. first guilty verdict in NFT insider trading case
The U.S. has handed down its first-ever guilty verdict in the NFT insider trading case
Former OpenSea platform product manager knew which NFT collections would be advertised on the website's homepage and pre-bought them for resale
Prosecutors have won the first-ever U.S. insider trading trial for digital assets, with a former employee of NFT marketplace OpenSea found guilty of using confidential information for profit, Bloomberg reports.
A jury found former platform product manager Nathaniel Chastain guilty of fraud and money laundering. Unlike insider trading trials, which center on securities fraud charges, Chastain was charged with wire fraud. This allowed prosecutors to sidestep the issue of classifying NFTs as an asset, not yet spelled out in the law.
Chastain, 32, was responsible for selecting the NFT section of Trending - those images that were posted on the front page of OpenSea's home page. Getting NFTs into that section of the site usually resulted in an immediate jump in their price. According to the indictment, OpenSea kept secret information about the NFT collections chosen to be displayed on the front page, but Chastain, with that information, bought up dozens of the right images in advance, and when they were published in the Trending section, immediately sold them for several times the purchase price, violating the confidentiality agreement.
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The prosecution alleges that Chastain profited over $57,000 in ETH cryptocurrency from the scheme. The defendant himself claims that he never converted the proceeds into dollars and therefore made no profit.
In September 2021, Chastain was asked to resign after his activities became visible both internally and to outside observers of the cryptocurrency community, which analyzes sales and tracks wallet transfers through blockchain transparency. The company then instituted a policy prohibiting employees from buying or selling NFTs as long as they are displayed on the home page of the site.
Chastain was arrested in June 2022. He faces up to 20 years in prison for each count, although he will likely end up with a much lesser sentence. Sentencing is scheduled for August 22.
The U.S. government previously took a similar approach in the first insider trading case involving cryptocurrencies. Ishaan Wahi, a former manager of the Coinbase exchange, pleaded guilty in January to two counts of conspiracy to commit fraud using confidential information about token listings on the exchange. Wahi also faced up to 20 years in prison for each count but was given a sentence of 36 to 47 months as part of a plea deal.
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