Former OpenSea Employee Fails to Drop Indictment in NFT Insider Trading Case

Chastain was responsible for deciding which NFTs would be featured on the exchange’s homepage.

Written by Shomik Sen Bhattacharjee, Edited by Siddharth Suvarna | Updated: 25 October 2022 13:25 IST

Former OpenSea Employee Fails to Drop Indictment in NFT Insider Trading Case

Photo Credit: Unsplash/ PiggyBank

Chastain allegedly purchased NFTs before they were posted publicly, profiting from their subsequent rise

Highlights

Nate Chastain is the former head of product at OpenSea
OpenSea decided to part ways with Chastain last month
Chastain's lawyers had moved to have the charges dismissed

Nate Chastain, the former OpenSea employee accused of an insider non-fungible token (NFT) trading scheme, was unable to convince a judge to dismiss his indictment, allowing the case to go ahead. The Department of Justice (DOJ) in June charged Chastain with wire fraud and money laundering over a series of allegedly dodgy trades, that occurred during his tenure as OpenSea's head of product between January and September 2021. Authorities say Chastain used confidential information regarding which NFTs would be featured on OpenSea's homepage, leveraging that knowledge to secretly purchase dozens of tokens just before they appeared.

Chastain subsequently profited by selling those NFTs, while using anonymous digital wallets and accounts on OpenSea to conceal his moves, according to the DOJ. He allegedly generated at least 19 ETH ($25,500 or roughly Rs. 21.1 lakh), per current prices) through the trades, based on information from his known wallets.

Chastain resigned from OpenSea after being suspected of misappropriating inside information in September 2021. At the time, several NFT traders flagged on Twitter that a wallet belonging to Chastain was routinely at the center of transactions involving NFTs that would show up on OpenSea's featured portal.

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Reuters reported he was accused of secretly buying 45 NFTs on 11 different occasions as part of an insider trading scheme. In one such event, his purchase and sale of the NFT “Spectrum of a Ramification Theory” on September 14, 2021, more than quadrupled his profits on that trade.

Chastain attempted to have the charges dropped, with his counsel arguing that the existence of securities or commodities trading is an essential element of any insider trading offence. And NFTs are neither of those, they contended. But this dispute has failed to convince the case's judge.

The lawyers also claimed the government cannot prove charges of money laundering, as Chastain's crypto transactions in question were conducted on the Ethereum blockchain and thus "completely visible to the public."

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Image caption: Chastain lost a bid to dismiss insider trading charges in a case involving digital assets.

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