A verdict in what the U.S. Department of Justice (DOJ) has described as the “first ever digital asset insider trading scheme” was rendered on Wednesday, as Nate Chastain, the former head of product at OpenSea, was convicted of money laundering and wire fraud in a New York federal court.
OpenSea, which currently stands as the industry’s largest online marketplace for selling digital collectibles, showcases its own determination to see the digital asset sector move forward in an ethical, more regulated capacity.
The first-ever trial involving digital tokens and allegations of insider trading marks a significant development for how the DOJ is able to harmonize traditional laws to the digital asset sector – a nascent industry that has primarily operated in the gray with little to no regulation.
Chastain, who was forced to resign from his position at OpenSea in September 2021, was charged in 2022 by the Manhattan U.S. attorney’s office of abusing his role so far as selecting the listed NFTs to feature on OpenSea’s homepage for the illicit purposes of making a profit.
Ironically, the allegations against Chastain by federal prosecutors, which were described as an “insider-trading scheme,” didn’t carry traditional insider-trading charges that one would typically expect to see attached to a case involving securities or commodities violations.
As a result, the jury was instructed to ignore any mention of “insider trading” and to only focus on the charges of “wire fraud” and “money laundering.”
Prosecutors alleged that from June 2021 to September 2021, Chastain made more than $50,000 USD buying specific NFTs that he knew would be featured on the company’s website, to then subsequently sell them at inflated prices – all housed across anonymous wallets and OpenSea accounts he had created.
"Nathanial Chastain exploited his advanced knowledge of which NFTs would be featured on OpenSea's website to make profitable trades for himself," U.S. Attorney Damian Williams said in a statement to Reuters. "Although this case involved novel trades in crypto assets, there was nothing particularly innovative about his conduct – it was fraud."
The trial, which began on April 24, was expected to last one to two weeks. Once it concluded, it had the jury deliberating for three days, only to find Chastain guilty on both counts.
Chastain now faces a maximum of 40 years in prison.
Coinbase & FTX
Even in the wake of Wednesday’s verdict against the former OpenSea product manager, Manhattan federal prosecutors have been busy over the past year working to find clarity on how digital currency and our legal landscape conflate and converge.
Last year, federal prosecutors obtained guilty pleas from two brothers who were charged with the first-ever insider-trading scheme involving crypto – one of them was a former Coinbase Global Inc. employee, who admitted to sharing confidential information from his position at Coinbase with his brother and a friend on certain currencies the crypto exchange was planning to list.
Unfortunately, the case left many legal questions unresolved, including how unregistered securities can mirror crypto assets.
And let’s not forget about the collapse of FTX and its disgraced founder, Sam Bankman-Fried, who among the heavy list of allegations in what has been described as a global fraud scheme, is currently awaiting trial in October to answer for allegations of the FTX founder stealing billions of dollars from FTX customers and investors.
In other news, read about Dr. Geoffrey Hinton and his warning to companies about the existential threats AI presents.
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