OpenSea Employee Arrested In The First Ever Insider NFT Trading Scandal

Azuki Collection on OpenSea
Azuki Collection on OpenSea

U.S. prosecutors are now going after insider trading in the crypto industry.

On Wednesday, New York’s Southern District prosecutors charged and arrested Nathaniel Chastain, a former product manager at the online marketplace OpenSea. The 31-year-old faces one count of wire fraud and one count of money laundering, in connection with a scheme to commit insider trading in non-fungible tokens, or NFTs, “using confidential information about what NFTs were going to be featured on OpenSea’s homepage for his personal financial gain.”

Each count carries a maximum sentence of 20 years in prison, the Department of Justice wrote in a press release

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DOJ officials say it is the first time they have pursued an insider trading charge involving digital assets.

“NFTs might be new, but this type of criminal scheme is not,” said U.S. Attorney Damian Williams. “Today’s charges demonstrate the commitment of this Office to stamping out insider trading — whether it occurs on the stock market or the blockchain.”

The FBI’s Assistant Director-in-Charge Michael J. Driscoll says the bureau will continue to aggressively pursue actors who choose to manipulate the market in this way.

London-based fintech data analyst Boaz Sobrado said the OpenSea scandal shows us two things clear. First, the transparency of the blockchain makes it a powerful tool to monitor nefarious behavior, given that all trades are public and recorded forever. But until today’s arrest, regulators hadn’t done much with that information.

“There’s a lot of chat about regulation right now, but what a lot of these bad actors are doing is clearly against the law right now. Regulators don’t need their powers expanded to be able to combat this sort of fraud and misleading statements,” Sobrado said.

Sobrado noted that money is so loose in the space that people participating in the nefarious activity are neglecting the simplest steps to cover their tracks.

“This, again, is indicative of the sort of wanton craziness that is going on in the sector right now,” he said. “While the going is good and everyone feels like they’re rich, it’s not spoken about as much. But as soon as the market turns down, a lot of these people are going to get exposed and a lot of people are going to be angry.