Former OpenSea Employee Faces Criminal Charges Over NFT Trades

A former employee of OpenSea, the biggest marketplace for non-fungible tokens (NFTs), is to go on trial this week in what is considered the first criminal insider trading case involving digital assets.

Nathaniel Chastain, former head of product at OpenSea, is accused of profiting from insider information at a time when NFTs were skyrocketing in popularity and price.

Trading in the tokens, which generally represent ownership of a digital asset such as an image that has no physical form, grew to more than $17 billion (£14bn) in 2021, an increase of some 21,000 percent over 2020’s total of $82m.

At the time Chastain was in charge of choosing which NFTs would feature on OpenSea’s homepage.

Insider trading

The information was not disclosed to the public before the NFTs were featured, after which the price for the featured NFTs typically saw a substantial rise.

US authorities indicted Chastain in June of last year for allegedly secretly purchasing dozens of NFTs shortly before they would be featured, between around June 2021 to September 2021.

Chastain would then sell the tokens shortly afterward at a profit.

“NFTs might be new, but this type of criminal scheme is not,” US Attorney Damian Williams said at the time of the indictment. “As alleged, Nathaniel Chastain betrayed OpenSea by using its confidential business information to make money for himself.”

‘Position of trust’

Prosecutors added in a 4 April filing that Chastain had “abused that position of trust”.

The charges were the first in a series of high-profile cases relating to digital assets launched by the Manhattan US Attorney’s Office last year.

Chastain is accused of one count of wire fraud and one count of money laundering, with each charge carrying a maximum of 20 years in prison.

The trial, set to begin on Monday, is expected to last one to two weeks.

NFT plunge

Chastain’s lawyers have argued the idea of “insider trading” is irrelevant as the tokens involved are not securities, and that OpenSea did not treat the information in question as confidential.

NFTs plunged in popularity last year, with the Wall Street Journal estimating in May 2022 that sales were down more than 90 percent from their peak the previous year.