Allegations of crime tied to crypto until now have mainly concerned scams, rug pulls and money laundering to circumvent sanctions. It is another blow for the crypto sphere.
Investors have been wondering whether the cryptocurrency market has bottomed after weeks of falling prices, amid concern about the economy’s health and questions about a potential UST and Luna coin scam. Now, federal authorities have filed the first charges concerning insider trading in the sector.
Nathaniel Chastain, 31, has been charged with one count of wire fraud and one count of money laundering, prosecutors with the U.S. Attorney’s Office for the Southern District of New York said in a June 1 statement. Chastain, who was arrested in New York, was an executive of OpenSea, the largest marketplace for nonfungible tokens. NFTs are a way of asserting ownership over a piece of online content, like a photo or recording.
Prosecutors say Chastain planned to use confidential information he had to buy dozens of NFTs that he knew were going to be featured on the platform. He then sold them at a profit, the U.S. Attorney’s Office statement said.
Accusations of jacking up the initial price
“From at least in or about June 2021 to at least in or about September 2021, Chastain used OpenSea’s confidential business information about what NFTs were going to be featured on its homepage to secretly purchase dozens of NFTs shortly before they were featured,” prosecutors alleged.
“After those NFTs were featured on OpenSea, Chastain sold them at profits of two- to five-times his initial purchase price.”
Chastain allegedly used anonymous digital currency wallets and anonymous accounts on OpenSea to hide the scheme.
He was responsible for selecting NFTs to be featured on OpenSea’s homepage. OpenSea kept confidential the identity of featured NFTs until they appeared there.
“After an NFT was featured on OpenSea’s homepage, the price buyers were willing to pay for that NFT, and for other NFTs made by the same NFT creator, typically increased substantially,” prosecutors alleged.
“NFTs might be new, but this type of criminal scheme is not,” U.S. Attorney Damian Williams said.
“With the emergence of any new investment tool, such as blockchain supported 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,” the FBI’s assistant director-in-charge, Michael J. Driscoll, added.
Breaking ties with OpenSea
The charges against Chastain carry a maximum sentence of 20 years in prison.
The scheme unfolded amid the euphoria surrounding NFTs in 2021. At the time, prices for these digital assets were breaking records before. They’ve more recently collapsed.
Last Sept. 15, OpenSea, in a blog post, had disclosed actions by one of its executives, without identifying the staffer. “Yesterday, we learned that one of our employees purchased items that they knew were set to display on our front page before they appeared there publicly,” OpenSea’s co-founder and CEO, Devin Finzer wrote.
“When we launched OpenSea, there was only one collection on our platform: CryptoKitties. Today, there are 20 million NFTs to discover on OpenSea.
“We owe this growth to the vibrant community of creators and collectors who use our platform every day, and we have a strong obligation to this community to move it forward responsibly and diligently.”
Finzer added that the behavior of the employee “violated that obligation and, yesterday, we requested and accepted his resignation.”