Former OpenSea Exec Arrested over NFT Insider Trading Scheme
Nathaniel Chastain, the former head of product at NFT sales platform OpenSea, has been charged by the FBI with wire fraud and money laundering, his arrest the first in history to involve NFTs in relation to insider trading, itself long the purview of Wall Street white-collar crooks. “NFTs might be new,” said US attorney Damian Williams in a statement, “but this type of criminal scheme is not.”
Chastain, who chose the NFTs showcased on OpenSea’s home page, is accused of purchasing crypto digital assets by soon-to-be-featured artists ahead of their appearance there, knowing their value would soon increase, and then selling them at a tremendous profit. Though the disgraced exec is believed to have done this repeatedly, the charges stem from a single incident, occurring on August 9, 2021, in which Chastain bought ten NFTs from a single series prior to its promotion on the OpenSea home page, and then sold them for up to three times the initial purchase price.
Though Chastain took pains to hide his nefarious doings by shuffling the assets to anonymous crypto wallets, the transfer of blockchain-supported nonfungible tokens remains relatively transparent. His efforts were spotted by a sharp-eyed Twitter user, @ZuwuTV, who on September 14 approached OpenSea via their Twitter account, asking why someone at the company “has a few secret wallets that appears [sic] to buy your front page drops before they are listed, then sells them shortly after the front-page-hype spike for profits, and then tumbles them back to his main wallet with his punk on it?” OpenSea investigated the incident, and Chastain summarily resigned. At the time, the platform had no policy in place regarding insider trading, and there were no rules preventing an employee from flipping assets using confidential information. The company’s CEO, Devin Finzer, shortly afterward announced a new policy, according to which OpenSea employees were forbidden to buy or sell NFTs the company was featuring and additionally could not use inside information to buy or sell NFTs of any kind, whether these appeared on the OpenSea platform or not.
Following his departure from OpenSea, Chastain went on to found Oval, a platform aimed at helping users discover new NFT creators. In the time since the scandal erupted, NFTs’ fortunes have risen and sunk, with the result that the assets involved in the criticized sales may have lessened in value. Clearly aware of this possibility, the Justice Department, which is seeking the forfeiture of said assets, has said it will seize from Chastain property equaling the value of the NFTs at the time of the wrongdoing.
Correction: Chastain has been arrested and charged with wire fraud and money laundering, not indicted on these charges as this article previously stated.