The Department of Justice released details today of NFT insider trading charges against OpenSea’s former head of product Nathaniel Chastain.
The news broke June 1st on both crypto publications like The Block as well as making headlines on mainstream outlets CNBC, NBC, Reuters and others, as the first case of NFT insider trading.
It could be a sign of a crackdown on non-fungible tokens and the NFT marketplaces they’re popularly bought, sold and traded on – OpenSea marketplace alone averages around $3 billion dollars in trading volume each month.
OpenSea Insider Trading
Read the full justice.gov press release here. The complete charges filed include ‘wire fraud and money laundering in connection with a scheme to commit insider trading’ – although at this stage these are just charges, not a guilty verdict.
The specific allegations of NFT insider trading are that Chastain bought many NFTs in advance of them being listed prominently on the homepage of OpenSea – the largest NFT marketplace on the market by far – and then sold them for 200 – 500% the price he purchased them at.
The OpenSea homepage features trending NFTs, notable NFT drops, and the top selling NFT collections each day.
In a statement US attorney Damian Williams signalled that the NFT space would be subject to as much scrutiny as other financial institutions:
‘NFTs might be new, but this type of criminal scheme is not. As alleged, Nathaniel Chastain betrayed OpenSea by using its confidential business information to make money for himself. Today’s charges demonstrate the commitment of this office to stamping out insider trading, whether it occurs on the stock market or on the blockchain.’
It’s unclear how much he would have been able to profit from this activity and no details are included in the short press release. Damian Williams is the same attorney involved with the arrest of the Frosties NFT founders – in that DOJ release the amount of funds defrauded was included.
Update – it emerged Nate Chastain only profited 19 ETH, lower than most insider trading cases.
Nate Chastain Fired by OpenSea
An OpenSea representative explained that Chastain was asked to step down for the alleged insider trading and it’s not an indictment of OpenSea as a whole:
‘When we learned of Nate’s behavior, we initiated an investigation and ultimately asked him to leave the company. His behavior was in violation of our employee policies and in direct conflict with our core values and principles.’
The case against Opensea’s former employee is being handled by the Securities and Commodities Fraud Task Force. Wire fraud and money laundering carry a maximum sentence of 20 years in federal prison, and Chastain is being charged with one count of each.
The price of Ethereum, commonly used to buy NFTs, crashed over 7% in the past 24 hours, to an intraday low of $1,750 on some cryptocurrency exchanges.
This time last month OpenSea hit a new all time high for 24 hour trading volume. A record of $476 million in Ethereum was transacted in a single day on May 1st, the day of the public mint of Otherdeeds – virtual land in the Otherside metaverse.
Allegations of NFT insider trading could harm the public image of this new emerging asset class, that has become a way for many people to earn a living. We wrote a ten-point guide on how investors and traders make money with NFTs.
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