Nathan Chastain, a former product manager at OpenSea, was sentenced on Tuesday to three months in prison (and more) in connection with what the U.S. Department of Justice (DOJ) describes as the “first-ever digital asset insider trading scheme,” according to Tuesday’s press release.
First-Ever Digital Asset Insider Trading Scheme
Chastain, 31, was forced to resign from his position at OpenSea in September 2021. He was charged in 2022 by the Manhattan U.S. attorney’s office of abusing his role in so far as having the authority to select the listed NFTs to feature on OpenSea’s homepage for the illicit purposes of making a profit.
Federal prosecutors alleged that Chastain made more than $50,000 USD buying specific NFTs that he knew would be featured on OpenSea’s website from June 2021 to September 2021, to then subsequently sell those NFTs at inflated prices – all housed across anonymous wallets and OpenSea accounts he had created.
“Nathanial Chastain exploited his advanced knowledge of which NFTs would be featured on OpenSea’s website to make profitable trades for himself,” U.S. Attorney Damian Williams told Reuters in May.
His trial began on April 24, and was expected to last one to two weeks. However, once it concluded, jury members were convinced after three days of deliberation that Chastain was guilty on both counts of wire fraud and money laundering.
Ironically, the allegations against Chastain by federal prosecutors, which were described as an “insider-trading scheme,” don’t carry traditional insider-trading charges that one would typically expect to see attached to a case involving securities or commodities violations. For this reason, the jury was initially instructed to ignore any mention of “insider trading” and to only focus on the charges of “wire fraud” and “money laundering.”
His Prison Sentence
As for Tuesday’s prison sentence, Chastain was also sentenced to three months of home confinement, three years of supervised release, a $50,000 fine (so much for keeping that $50,000 profit from selling those NFTs), and ordered to forfeit the Ether (ETH) he made trading those featured NFT – specifically, 15.9 ETH (approx. $26,000 as of press time).
Unfortunately, Chastain’s prison sentence was significantly shorter than the two year sentence federal prosecutors had initially asked for, referencing Coinbase’s previous insider trading case. In this case, U.S. District Judge Jesse M. Furman (NY) chose a lesser sentence to better capture Chastain’s $50,000 earnings from illicitly trading the NFTs.
During the hearing, Judge Furman stated that the law doesn’t require trading in securities or commodities for it to be fraud, declining to dismiss the indictment, as reported by Fortune.
“Nathanial Chastain faced justice today for violating the trust that his employer placed in him by using OpenSea’s confidential information for his own profit. Today’s sentence should serve as a warning to other corporate insiders that insider trading – in any marketplace – will not be tolerated,” said U.S. Attorney Damian Williams in the press release.
“I am here today because two years ago I let down the community I was serving and lost sight of the person I aspired to be,” Chastain said at the hearing, as shared by Fortune. “I’m sorry for putting my colleagues and friends at OpenSea through this ordeal.”
While regulators like the SEC and the CFTC continue to bicker over who has the authority over digital asset regulation, prosecutors aren’t wasting time in enforcing its stance on the misappropriation of confidential information and insider trading – even if it is with NFTs and cryptocurrency.
And speaking to the SEC, CFTC, and lawmakers – get on it.
Editor’s note: This article was written by an nft now staff member in collaboration with OpenAI’s GPT-4.