A former executive of OpenSea, the largest NFT marketplace by trading volume, has been charged with committing wire fraud and money laundering during his time with the company in what the federal government called the “first ever digital asset insider trading scheme.”
Thirty-one-year-old Nathanial Chastian allegedly profited from his role of selecting which non-fungible tokens, or NFTs, would be promoted on OpenSea’s homepage, according to the indictment released Wednesday from the Justice Department.
“In this case, as alleged, Chastain launched an age-old scheme to commit insider trading by using his knowledge of confidential information to purchase dozens of NFTs in advance of them being featured on OpenSea’s homepage,” FBI Assistant Director-in-Charge Michael J. Driscoll said in a press statement.
Between June and September 2021, Chastain allegedly used that advanced knowledge to purchase "approximately 45 NFTs," typically selling them for anywhere from two to five times their initial value.
“OpenSea kept confidential the identity of featured NFTs until they appeared on its homepage,” according to the indictment. “After an NFT was featured on OpenSea’s homepage, the price buyers were willing to pay for the NFT, and for other NFTs made by the same NFT creator, typically increased substantially.”
Notably, the indictment itself makes no mention of insider trading and therefore has nothing to do with whether or not NFTs meet the designation of a security.
According to the indictment, Chastian committed wire fraud by “misappropriating Open Sea’s confidential business information” and using it to obtain money and property through “false and fraudulent pretenses.”
He is also charged with money laundering for concealing his transactions through anonymous cryptocurrency wallets and OpenSea accounts, the indictment said.
“With the emergence of any new investment tool, such as blockchain supported non-fungible tokens, there are those who will exploit vulnerabilities for their own gain,” Driscoll said in the statement. “The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way.”
On September 14 of last year, rumors of the scandal first surfaced over social media where an NFT collector traced the transactions from one of Christians wallet addresses.
Hey @opensea why does it appear @natechastain has a few secret wallets that appears to buy your front page drops before they are listed, then sells them shortly after the front-page-hype spike for profits, and then tumbles them back to his main wallet with his punk on it?
— 0xZuwu.eth ?? (@0xZuwu) September 14, 2021
The following day, OpenSea disclosed the issue in a blog post, adding two new additional employee policies that restricted employees from buying from artists or collections while the platform featured them and generally prohibited the use of “confidential information to purchase or sell any NFTs.”
Shortly after, Chastian resigned from his role with Open Sea.
For both counts, Chastian was brought to Manhattan Court Wednesday. His charges each carry a maximum sentence of 20 years in prison.
David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.
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