Former OpenSea boss convicted in first NFT insider trading case – ARTnews.com

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Nate Chastain, a former manager at marketplace OpenSea, has been found guilty in the first insider trading case in the NFT ecosystem.

In the fall of 2021, OpenSea users noticed that Chastain was using anonymous Ethereum wallets to buy up works by artists to be displayed on the marketplace’s welcome page. In the hot NFT market of 2021, a feature from OpenSea usually led to an overall increase in the valuation of an artist’s work. Users complained that Chastain used privileged information to buy works that he knew were due for an increase in value, and he subsequently resigned. Then in June 2022, Chastain was arrested by the FBI on insider trading charges. Now a jury has found him guilty.

“Although this case involved the trading of new cryptoassets, there was nothing particularly innovative about his conduct – it was fraud,” US Attorney Damian Williams said in a statement. “A jury has found Chastain guilty of using inside information for his own personal gain, and he now faces time in federal prison.”

Chastain’s lawyers used a variety of arguments to try to avoid the “insider trading” label, which carries serious prison terms. One argument was that because NFTs are not yet considered securities, the special crime of insider trading was not applicable in this case. Still, a judge made it clear in an order that insider trading actually doesn’t just apply to securities, but rather some fraudulent conduct “where someone with non-public information about an asset improperly uses that information to trade the asset or helps someone else trade it.”

The case has so far hinged on whether the jury believed Chastain’s knowledge of up-and-coming famous artists constituted confidential business information. This was initially unclear because the company was a young start-up trading in new assets. Chastain’s misconduct required OpenSea to implement clear policies prohibiting employees from trading with featured artists or from using confidential information in their trading, even outside the OpenSea marketplace.

But what constitutes confidential business information is not only defined by written guidelines, but the way employees handle certain information. In a letter to the jury, the judge outlined certain characteristics that define confidential business information beyond written policy, such as measures the employer has taken to safeguard the confidentiality of the information, the extent to which the information is known outside the employer’s place of business, or whether the information had financial value to the employer.

Chastain’s use of anonymous wallets to cover his tracks was evidence that made clear that he was aware that he was using confidential knowledge.

His sentence for wire fraud and money laundering will be decided by August 22. OpenSea has not yet responded to a request for comment.