An ex-employe of the largest online marketplace for nonfungible tokens in the world has been charged and arrested by federal authorities. This is believed to be the first case of insider trading involving NFTs.
Prosecutors claim that Nathaniel Chastain (31), used his position as OpenSea’s product manager to purchase NFTs, before they were widely advertised on the site. Then, he later sold them for profit when other investors purchased the digital items. According to a blog post by the company in 2021, he resigned last September when he was discovered to be involved in NFT sales.
NFTs have seen a rise in popularity among institutional and retail investors in recent years. They provide proof of ownership over a piece of code that is linked to digital art or video, as well as text. Digital tokens cannot be copied or broken down, but they can be transferred and sold. According to Jefferies, the NFT market will reach $35 billion in this year and rise to over $80 billion by 2025.
U.S. Attorney Damian Williams stated Wednesday that NFTs may be new but that this type of criminal scheme was not. “Nathaniel Chastain allegedly acted in deceit against OpenSea, using confidential information from the company to make his own money.
David Miller, Chastain’s lawyer, stated in a statement that his client was innocent. Miller stated that he is confident that Chastain will be exonerated once all facts are known.
Prosecutors claimed that Chastain bought an NFT before it was promoted on OpenSea’s homepage. He then waited for the price of the NFT to rise and then sold it when it reached its peak. Prosecutors allege that he repeated the same process approximately 11 times from June 2021 to Sept 2021. According to the indictment, Chastain purchased 45 NFTs and sold them typically for between two and five times their initial price.
Chastain is alleged to have used anonymous electronic wallets and OpenSea accounts to conceal the fraud. The amount of money Chastain is believed have been made from this strategy has not yet been disclosed by the prosecution.
Chastain allegedly purchased the NFTs “Brawl 2, Flipping & Spinning”, and “Spectrum of a Ramenification Theory”
In a statement, Michael Driscoll, FBI Assistant Director in Charge, stated that “with the emergence any new investment tool such as blockchain-supported, non-fungible tokens”, there are people who will exploit vulnerabilities to their own gain.”
Chastain was charged with wire fraud, money laundering and could spend up to 20 years prison. Chastain was released Wednesday after posting $100,000 bail. He is due back in court June 15.