OpenSea NFT insider trading case raises potential for more fraud cases
A former manager at NFT marketplace OpenSea was found guilty of wire fraud and money laundering on Wednesday in a first-of-its-kind case involving digital assets and insider trading.
32-year-old Nathaniel Chastain was once a product manager at OpenSea, a role that involved picking NFTs to be showcased on the marketplace’s landing page; these specific NFTs would often rise in price once displayed there.
The former manager was discovered preemptively buying dozens of NFTs destined to appear on the landing page and selling them at a profit after the exposure drove up prices. Following evidence of insider trading in 2021, the firm banned the practice internally. Chastain resigned from OpenSea and was later arrested in June 2022.
Prosecutors claimed Chastain made close to $57,000 in profit. However, the former manager denied this and argued that knowledge of the upcoming landing page NFTs wasn’t confidential business information. In rebuttal, it was pointed out that two anonymous wallets were used to make the trades, indicating Chastain must have known his actions were wrong.
“He abused his status at OpenSea to line his own pockets, and he lied to cover his tracks,” prosecutors said.
NFT security listing complicated matters
The OpenSea insider trading case brought a legal dilemma. Chastain had to be charged with wire fraud — not securities fraud — due to the ongoing debate surrounding the legal classification of NFTs as securities.
Chastain’s legal documents argued that expanding the law on wire fraud would mean a rise in the number of cases involving employees ‘taking’ confidential business information. In turn, this would lead to an increase in employer-employee disputes being criminalized, they argued.
Over 300 defense attorneys expressed support of Chastain’s request to drop the indictment, echoing concerns that the legislation would “criminalize a broad swath of conduct,” (via Bloomberg).
Read more: OpenSea has 99 problems — insider trading was just one
In response to yesterday’s verdict, Chastain’s lawyers said, “We respectfully disagree with [the jury’s] decision and will evaluate our options.”
The 32-year-old faces a maximum sentence of 20 years in prison.
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