From the end of 2020, throughout most of last year, if you were making history within the budding NFT space, it usually meant you made a record-breaking amount of money, as future prognostics for ownership over digital artwork pointed in the positive direction.
Nate Chastain, former Head of Product at OpenSea, who resigned from the company after being accused of insider trading back in September, has now made history for all the wrong reasons, however. This week he was formally charged with the first ever digital asset insider trading scheme by the U.S. department of justice, and arrested in New York.
The indictment was announced in a press release from the U.S. Attorney’s Office, in the Southern District of New York, and alleges that Chastain committed wire fraud and money laundering “by using confidential information about what NFTs were going to be featured on OpenSea’s homepage for his personal financial gain.” Both charges carry a maximum sentence of 20 years in prison.
What exactly was he doing?— Chastain was engaging in a practice known as front-running, where he would purchase a set of NFTs that he knew would be subsequently featured on the home page of OpenSea (part of his duties as head of product was selecting what NFTs would be prominently featured on the site), and then offloading them after they received a price hike due to the visibility of this move to the front of site.
In order to complete these initial purchases, Chastain used anonymous crypto wallets and accounts on OpenSea, something he had been doing since at least June 2021 through September 2021. His illicit activity was uncovered by other NFT owners, after Twitter user, @0xZuwu, started a thread that exposed his transaction receipts on the blockchain ledger, which quickly went viral. It’s unclear whether or not Chastain would have been held accountable if it weren’t for the sleuthing of other members in the NFT community.
This crackdown on Chastain’s actions marks a departure from the way crime is handled on the blockchain. There have been a number of shady NFT practices, including rugpulls, headlined by celebrities that have gone unpunished because the crypto space is largely unregulated and still relatively new.
In the aforementioned press release that outlined the indictment, Michael J. Driscoll, the FBI Assistant Director-in-Charge, made a statement that could foreshadow law enforcement’s hardened stance towards crypto-related crimes moving forward:
“In this case, as alleged, Chastain launched an age-old scheme to commit insider trading by using his knowledge of confidential information to purchase dozens of NFTs in advance of them being featured on OpenSea’s homepage ... The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way.”