Former Employee Of NFT Marketplace Charged In First Ever Digital Asset Insider Trading Scheme

Damian Williams, the United States Attorney for the Southern District of New York, and Michael J. Driscoll, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), introduced at this time the unsealing of an Indictment charging NATHANIEL CHASTAIN, a former product supervisor at Ozone Networks, Inc. d/b/a OpenSea (“OpenSea”), with wire fraud and cash laundering in reference to a scheme to commit insider buying and selling in Non-Fungible Tokens, or “NFTs,” through the use of confidential details about what NFTs had been going to be featured on OpenSea’s homepage for his private monetary achieve.  CHASTAIN was arrested this morning in New York, New York and will probably be offered at this time within the United States District Court for the Southern District of New York.

U.S. Attorney Damian Williams stated:  “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 the blockchain.”

FBI Assistant Director-in-Charge Michael J. Driscoll stated:  “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. 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. The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way.”

As alleged within the Indictment unsealed at this time in Manhattan federal courtroom:[1]

This case considerations insider buying and selling in NFTs on OpenSea, the most important on-line market for the acquisition and sale of NFTs. In violation of the duties of belief and confidence he owed to his employer, OpenSea, CHASTAIN exploited his superior information of what NFTs can be featured on OpenSea’s homepage for his private monetary achieve.

As a part of his employment, CHASTAIN was liable for choosing NFTs to be featured on OpenSea’s homepage. OpenSea saved confidential the id of featured NFTs till they appeared on its homepage. After an NFT was featured on OpenSea’s homepage, the value consumers had been prepared to pay for that NFT, and for different NFTs made by the identical NFT creator, usually elevated considerably.

From at the least in or about June 2021 to at the least in or about September 2021, CHASTAIN used OpenSea’s confidential enterprise details about what NFTs had been going to be featured on its homepage to secretly buy dozens of NFTs shortly earlier than they had been featured. After these NFTs had been featured on OpenSea, CHASTAIN offered them at income of two- to five-times his preliminary buy worth. To conceal the fraud, CHASTAIN carried out these purchases and gross sales utilizing nameless digital foreign money wallets and nameless accounts on OpenSea.

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CHASTAIN, 31, of New York, New York is charged with one rely of wire fraud and one rely of cash laundering, every of which carries a most sentence of 20 years in jail. 

The most potential sentences are prescribed by Congress and are supplied right here for informational functions solely, as any sentencing of the defendant will probably be decided by a decide.

Mr. Williams praised the excellent work of the FBI. Mr. Williams additionally thanked the National Cryptocurrency Enforcement Team for his or her help within the investigation. 

This case is being dealt with by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Thomas S. Burnett and Nicolas Roos are in control of the prosecution. 

The expenses contained within the Indictment are merely accusations, and the defendant is presumed harmless except and till confirmed responsible.

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