Former employee of NFT Marketplace charged with first-time digital asset trading scheme | USAO-SDNY

Damian Williams, the U.S. Attorney for the Southern District of New York, and Michael J. Driscoll, Assistant Director of the New York Field Office at the Federal Bureau of Investigation (“FBI”), today announced the indictment of NATHANIEL CHASTAIN, a former product manager at Ozone Networks, Inc. d / b / a OpenSea (“OpenSea”), for electronic fraud and money laundering in connection with a scheme to commit insider trading with non-fungable tokens, or “NFTs,” by using confidential information about which NFTs to display on OpenSea’s website for his personal financial gain. CHASTAIN was arrested this morning in New York, New York, and will today be presented in U.S. District Court for the Southern District of New York.

U.S. Attorney Damian Williams said: “NFTs may 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. to stop insider trading – whether it happens in the stock market or the blockchain. “

FBI Assistant Director Michael J. Driscoll said: “In this case, as alleged, Chastain launched an ancient insider trading scheme using his knowledge of confidential information to buy dozens of NFTs before being featured on OpenSea’s website. . With the emergence of any new investment tool, such as blockchain-supported non-fungible tokens, it is they who will exploit vulnerabilities for their own gain. The FBI will continue to aggressively prosecute players who choose to manipulate the market in this way. “

As alleged in the indictment released 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 fiduciary and fiduciary duties he owed his employer, OpenSea, CHASTAIN utilized his advanced knowledge of which NFTs would be featured on OpenSea’s website for his personal financial gain.

As part of his employment, CHASTAIN was responsible for selecting NFTs to be displayed on OpenSea’s website. OpenSea kept the identity of the mentioned NFTs confidential until they appeared on the website. After an NFT was featured on the OpenSea website, the price that buyers were willing to pay for that NFT, and for other NFTs made by the same NFT creator, usually increased significantly.

From at least in or around June 2021 to at least in or around September 2021, CHASTAIN used OpenSea’s confidential business information about which NFTs to display on their website to secretly buy dozens of NFTs shortly before they were featured. . After these NFTs were shown on OpenSea, CHASTAIN sold them at a profit of two to five times the original purchase price. To hide the scam, CHASTAIN made these purchases and sales using anonymous digital currency wallets and anonymous accounts on OpenSea.

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CHASTAIN, 31, of New York, New York, is charged with one count of electronic fraud and one count of money laundering, each serving a maximum sentence of 20 years in prison.

The maximum potential penalties are prescribed by Congress and are given here for informational purposes only, as any sentencing of defendants will be determined by a judge.

Mr. Williams praised the FBI’s outstanding work. Mr. Williams also thanked the National Cryptocurrency Enforcement Team for their assistance in the investigation.

This case is being processed by the office’s working group for securities and commodity fraud. Assistant U.S. Attorneys Thomas S. Burnett and Nicolas Roos are in charge of the prosecution.

The charges in the indictment are only charges, and the accused is presumed innocent unless and until proven otherwise.