Ex-OpenSea Employee Charged by DoJ for Insider Trading of NFTs

Bob Mason
Published: Jun 2, 2022, 04:42 UTC

OpenSea was in the news this week. The capture of a former OpenSea employee for insider trading of NFTs will be a warning to other cybercriminals.

OpenSea NFT Marketplace.

Key Insights:

  • On Wednesday, the Department of Justice charged a former OpenSea employee with the insider trading of NFTs.
  • While illicit activity across the NFT marketplace has jumped this year, this may be the first active case against a former employee.
  • The latest news puts a bigger spotlight on the NFT space, which has come under increased regulatory scrutiny.

In January, OpenSea saw NFT trading volumes hit an all-time high.

According to Dune Analytics, ETH trading volume hit $4.97bn. Since January, however, trading volumes have fallen back. In May, trading volumes stood at $2.49bn, down from an April $3.49bn.

The decline in trading volumes comes despite a marked increase in NFT activity, supported by more mainstream players going Web3.

While increased competition contributed to the fall, a marked increase in illicit activity left potential investors wary. OpenSea made efforts to curb illegal activity. However, the news of the DoJ charging a former employee with insider trading will not help the brand image.

US Department of Justice Charges OpenSea Employee for Insider Trading

On Wednesday, the US Attorney’s Office for the Southern District of New York charged Nathaniel Chastain, a former employee of OpenSea, for insider trading.

According to the DoJ press release, the US Attorney for the Southern District of New York and the New York Field Office of the FBI announced the unsealing of an Indictment charging Nathaniel Chastain,

“With wire fraud and money laundering in connection with a scheme to commit insider trading in Non-Fungible Tokens or “NFTs,” by using confidential information about what NFTs were going to be featured on OpenSea’s homepage for his personal financial gain.”

The announcement went on to say,

“CHASTAIN was arrested this morning in New York, New York, and will be presented today in the United States District Court for the Southern District of New York.”

According to the press release, CHASTAIN’s role included the selection of NFTs to feature on OpenSea’s homepage, which was confidential information until available on the homepage.

NFTs featuring on the OpenSea homepage tend to see significant price increases due to buyer demand.

CHASTAIN allegedly used the confidential NFT listing information to purchase NFTs before they featured on the homepage. CHASTAIN then reportedly sold the NFTs at profits of between two to five times the initial purchase price.

He concealed the fraudulent activity by making the purchases and sales using anonymous digital wallets and OpenSea accounts.

The FBI and the National Cryptocurrency Enforcement Team were involved in the investigation.

Increased US Law Enforcement Focus on Virtual Assets Pays Dividends

In March, the FBI announced the setup of a new ‘Virtual Asset Unit’ (VAU) to curb online setup criminal activity.

According to the announcement, the unit would consist of experts from the crypto industry. The setup of the VAU followed the launch of the National Cryptocurrency Enforcement Team (NCET) within the criminal division of the DoJ.

The effectiveness of the VAU-NCET partnership to tackle cybercrime has yet to come under scrutiny.

Supported by the VAU-NCET partnership, the US DoJ arrested and charged two 20-year-olds for reportedly carrying out the January Frosties rug pull. The Frosties rug pull involved the sale of 8,888 NFTs, netting an Ethereum (ETH) equivalent of $1.3 million.

The latest arrest will send a warning to other cybercriminals targeting the US.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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