Former employee of NFT Marketplace charged in first insider trading scheme for digital assets | USAO-SDNY

Damian Williams, 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”), today announced the unsealing of an indictment charging NATHANIEL CHASTAIN, a former product manager at Ozone Networks, Inc. d/b/a OpenSea (“OpenSea”), for wire fraud and money laundering in connection with a scheme to commit insider trading in non-fungible tokens, or “NFTs,” using confidential information about which NFTs were to be displayed on OpenSea’s website for his personal financial gain. CHASTAIN was arrested this morning in New York, New York and will be arraigned today in the United States District Court for the Southern District of New York.

US 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. Today’s charges demonstrate the office’s commitment to to stop insider trading – whether it happens on the stock market or the blockchain.”

FBI Assistant Director-in-Charge Michael J. Driscoll said: “In this case, as alleged, Chastain launched an ancient scheme to commit insider trading by using her knowledge of confidential information to purchase dozens of NFTs before they were featured on OpenSea’s website . With the rise of any new investment tool, such as blockchain-backed 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 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 fiduciary and fiduciary duties he owed his employer, OpenSea, CHASTAIN exploited 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 mentioned NFTs confidential until they appeared on the website. After an NFT was featured on OpenSea’s website, the price that buyers were willing to pay for that NFT, and for other NFTs created 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 were to be displayed on their website to secretly purchase dozens of NFTs shortly before they were discussed. After these NFTs were displayed on OpenSea, CHASTAIN sold them for a profit of two to five times the original purchase price. To conceal the fraud, CHASTAIN conducted 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 wire fraud and one count of money laundering, each of which carries a maximum sentence of 20 years in prison.

The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.

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

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

The charges in the indictment are only accusations, and the defendant is presumed to be innocent unless and until proven otherwise.