A grand jury has indicted the former head of product at non-fungible token (NFT) platform OpenSea on wire fraud and money laundering charges after an insider trading scandal.
Nathaniel Chastain was arrested Wednesday morning in New York, New York. He is slated for presentation in the US District Court for the Southern District of New York, according to a Wednesday press release from the Department of Justice.
Chastain was previously accused of using secret Ethereum wallets to purchase NFTs based on confidential information that they’d soon be featured on OpenSea’s home page. He was allegedly responsible for selecting which NFTs would be featured on the homepage, according to the indictment. From about June 2021 to September 2021, he sold these pieces for two to five times his initial purchase price shortly after the value jumped from a front-page feature, according to the DOJ’s indictment.
The actions were compared to frontrunning and insider trading, activities in which an individual profits off of non-public information. Those activities are prohibited in traditional financial markets, but it was unclear how those laws might apply to the NFT space.
Law enforcement indicates that those laws will apply just the same.
“NFTs might be new, but this type of criminal scheme is not,” said U.S. Attorney Damian Williams in a statement. “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 the blockchain.”
FBI Assistant Director-in-Charge Michael J. Driscoll said the FBI “will continue to aggressively pursue actors who choose to manipulate the market in this way.”
OpenSea published a blog post in September of last year acknowledging Chastain’s actions. In response to today’s arrest, an OpenSea spokesperson told The Block:
“As the world’s leading web3 marketplace for NFTs, trust and integrity are core to everything we do. 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.”
