A former OpenSea executive, has been charged with committing wire fraud and money laundering during his time with the company in what the federal government called the “first ever digital asset insider trading scheme”.
Nathanial Chastian, a 31 year old allegedly profited from his role of selecting which non-fungible tokens, or NFTs, would be promoted on OpenSea’s homepage, according to the indictment released Wednesday from the Justice Department.
“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,” FBI Assistant Director-in-Charge Michael J. Driscoll said in a press statement.
Chastain allegedly used that advanced knowledge between June and September 2021 to purchase “approximately 45 NFTs,” typically selling them for anywhere from two to five times their initial value.
“OpenSea kept confidential the identity of featured NFTs until they appeared on its homepage,” according to the indictment. “After an NFT was featured on OpenSea’s homepage, the price buyers were willing to pay for the NFT, and for other NFTs made by the same NFT creator, typically increased substantially.”
Note that the indictment itself makes no mention of insider trading and therefore has nothing to do with whether or not NFTs meet the requirements of a security.
According to the indictment, Chastian committed wire fraud by “misappropriating Open Sea’s confidential business information” and using it to obtain money and property through “false and fraudulent pretenses.”
He was also charged with money laundering due to concealing his transactions through anonymous cryptocurrency wallets and OpenSea accounts, the indictment said.
“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,” Driscoll said in the statement. “The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way.”
On September 14 of last year, news of the scandal first broke loose over social media where an NFT collector tracked the transactions from one of Christians wallet addresses.
On the next day, OpenSea disclosed the issue in a blog post with two new additional employee policies that prohibit employees from buying from artists or collections while the platform featured them and generally prohibited the use of “confidential information to purchase or sell any NFTs.”
Shortly after, Chastian resigned from his post with Open Sea.
For both counts, Chastian was brought to Manhattan Court on Wednesday with his charges each carry a maximum sentence of 20 years in prison.
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