Former OpenSea manager convicted in insider trading case
A jury of federal court in Manhattan, USA convicted thirty two year old Nathaniel Chastain, former product manager at the largest Non Fungible token (NFT) marketplace, OpenSea. As per the sources, sentencing in the case will be on 22 August 2023.
The conviction of the former employee of OpenSea, as described by federal prosecutors as the first insider-trading case involving digital tokens, is considered as marking a win for the justice department in its push to police the crypto industry.
Federal jury in New York convicted Chastain of wire fraud and money laundering for using nonpublic information from his employer to trade on nonfungible tokens in 2021. Wire fraud includes telemarketing schemes and online phishing scams. Phishing refers to the fraudulent use of emails with the intent to obtain the email recipient’s personal information, such as their bank account numbers or identity information like their Social Security number
The Manhattan U.S. attorney’s office charged Mr. Chastain, accused him of purchasing the NFTs ahead of OpenSea’s featuring them on its home page. Once the NFTs spiked in value after being featured, Mr. Chastain sold them, pocketing tens of thousands of dollars in profit, prosecutors added. The government alleged Chastain made more than $57,000 in profit from the scheme based on the value of ethereum tokens he collected from the NFT sales.
During the hearing the prosecutors mentioned that Chastain was responsible for selecting which NFTs would be highlighted on opensea’s home page, which usually led to an immediate spike in the price of the assets. Further added, while OpenSea would keep the identity of featured tokens secret until they appeared on its home page, Chastain bought dozens of them beforehand and then sold them immediately afterward for as much as five times the purchase price, violating his duty to keep the information confidential.
Unlike most traditional insider-trading cases, which are centered around securities-fraud charges for misappropriating non-public information such as unreleased earnings reports, Chastain was charged with wire fraud. That allowed prosecutors to skirt the issue of whether non-fungible tokens are legally classified as a security, a hotly debated topic in the world of digital assets.
A group of more than 300 defense attorneys filed a letter in support of Chastain’s request to throw out the indictment, saying that a finding that confidential business information is property would expand how fraud is prosecuted and “criminalize a broad swath of conduct.”
The verdict is likely to encourage further use of the strategy by prosecutors as a tool to ferret out fraud in nontraditional markets while regulations for digital assets are still being crafted.
It is important to note that the government used a similar approach in the first insider-trading case involving cryptocurrency. Ishan Wahi, a former coinbase global inc. manager, pleaded guilty in February to two counts of conspiracy to commit wire fraud for trading on confidential information he learned about when the exchange was going to list new tokens.