Ex-NFT Marketplace employee charged in first digital asset insider trading program |  USAO-SDNY

Ex-NFT Marketplace employee charged in first digital asset insider trading program | USAO-SDNY

Damian Williams, United States Attorney for the Southern District of New York, and Michael Driscoll, associate director in charge of the FBI’s New York field office, announced today the unsealing of an indictment charging NATHANIEL CHASTAIN, a former product manager at Ozone Networks, Inc. d/b/a OpenSea (“OpenSea”), wire fraud and money laundering in connection with a scheme to commit insider trading in non-fungible tokens, or “NFTs”, using confidential information about NFT items to be displayed on the OpenSea homepage for gain personal finances. CHASTAIN was arrested this morning in New York, New York, and will be presented today in the United States District Court for the Southern District of New York.

US Attorney Damien Williams said: “NFTs may be new, but this type of criminal scheme is not. Nathaniel Chastain OpenSea allegedly betrayed by using his confidential trading information to make money for himself. Today’s charges demonstrate this office’s commitment to eliminating insider trading – whether it happened in the stock market or the blockchain.

“In this case, it was alleged, Chastain launched a legacy insider-trading commitment scheme using his knowledge of confidential information to pre-purchase dozens of NFTs on the OpenSea homepage,” said Michael J. Driscoll, the FBI’s Assistant Director in Charge. With the advent of any new investment vehicle, Like non-fungible tokens backed by the blockchain, there are those who will exploit vulnerabilities for their own gain. The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way.”

As claimed in the indictment unsealed today in Manhattan federal court:[1]

This case concerns insider trading in NFTs on OpenSea, the largest online marketplace for buying and selling NFTs. In violation of the duties of trust and confidence he owes to his employer, OpenSea, CHASTAIN has used his advanced knowledge of what NFTs will display on the OpenSea homepage for his personal financial gain.

As part of its work, CHASTAIN was responsible for selecting the NFTs to be displayed on the OpenSea homepage. OpenSea kept the NFTs’ distinct identity secret until it appeared on its homepage. After the NFT appeared on the OpenSea homepage, buyers were willing to pay for this NFT, and for other NFTs made by the same NFT creator, they usually increased significantly.

From at least June 2021 or around until at least September 2021, CHASTAIN used OpenSea’s confidential business information about what NFTs would have been shown on its homepage to secretly purchase dozens of NFTs shortly before their appearance. After the NFTs appeared on OpenSea, CHASTAIN sold them at two to five times the initial purchase price. To hide the fraud, CHASTAIN made these purchases and sales using anonymous cryptocurrency wallets and anonymous accounts on OpenSea.

* * *

CHASTAIN, 31, of New York, is charged with one wire fraud and one money laundering count, each punishable by a maximum of 20 years in prison.

The maximum possible penalties are determined by Congress and are provided here for informational purposes only, as any sentencing of the Defendant will be determined by the judge.

Mr. Williams praised the outstanding work of the FBI. Mr. Williams also thanked the National Crypto Enforcement Team for their assistance in the investigation.

This case is being handled by the Bureau’s Securities and Commodities Fraud Task Force. Assistant US Attorney Thomas S. Burnett and Nicholas Ross are responsible for the prosecution.

The charges in the indictment are mere accusations, and the defendant is innocent unless and until proven guilty.

[1] As the introductory statement indicates, the entire text of the indictment and the description of the indictment set forth in this statement constitute allegations only, and each fact described must be treated as an allegation.

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