Former OpenSea employee sentenced in first NFT insider trading case

A 32-year-old former OpenSea product manager has been found guilty of buying non-fungible tokens that he knew would increase sharply in value, in the first conviction for what prosecutors described as insider trading in digital assets.

Nate Chastain, who worked at OpenSea – then the largest platform for buying and selling NFTs – was charged in New York last year with wire fraud and money laundering.

US prosecutors alleged that he had bought 45 tokens over the course of about five months that he knew would increase in popularity when they were featured on the website’s homepage, only to sell them soon after for between two and five times the price he paid.

The transactions were first flagged by a Twitter user in late 2021, and Chastain’s scheme was subsequently confirmed by OpenSea, which promised to tighten controls.

“He cheated, he stole, and he lied,” Assistant U.S. Attorney Allison Nichols told jurors in closing arguments Monday. “He saw a way to make a little extra money, to capture the upside”.

She referred to messages from Chastain presented at trial in which he referred to having “FOMO” or “fear of missing out” when he did not buy NFTs that were set to be in value.

Chastain’s lawyers argued that there were “no policies, no training, no guidance” at OpenSea that prohibited the defendants from buying the NFTs in question, and that such rules were only put in place once Chastain’s transactions became a public matter.

They pointed out that when Chastain was confronted by a Twitter user about his transactions in August 2021, Chastain publicly responded that he had bought a particular NFT because he “wanted to secure one of these before they all disappeared [to be honest]”.

“He told the world, and the world didn’t care – he got likes,” defense attorney Daniel Filor, of the law firm Greenberg Traurig, said in closing arguments.

Before the week-long trial, Chastain’s lawyers had argued that an “insider trading” case required the involvement of securities or commodities, labels they argued did not apply to NFTs. Chastain’s actions, they said, were akin to an employee of an art gallery promoting her own painting and fetching a higher sum for it as a result.

At its peak, OpenSea facilitated more than $3.8 billion in NFT transactions per month on the platform, according to data from DappRadar, with some digital artworks selling for millions of dollars. Volumes have since dropped considerably, to $200 million in the last 30 days.

In a statement shortly after the verdict, David Miller, an attorney for Chastain, said: “We respect the jury process and appreciate the jury’s time and effort. However, we disagree with the jury’s verdict and are considering our options.”

Chastain, who was found guilty on both counts, faces a maximum of 40 years in prison. He will be sentenced at a later date.

While the ruling marks a significant victory for the US Attorney’s Office for the Southern District of New York, it does not necessarily pave the way for a wave of NFT insider trading cases.

“I’m not sure it opens the floodgates because the charges here and the verdict really stayed away from whether an NFT is a security,” said Joshua Newville, a partner at Proskauer.

“I would assume that the jury decided that this is property that OpenSea took some steps to protect.”