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Former OpenSea product manager Nathaniel Chastain has been found guilty of wire fraud and money laundering in the first insider-trading trial involving non-fungible tokens (NFTs).
A federal court in Manhattan, New York handed down the verdict on Wednesday after a week-long trial and two days of deliberations. Chastain was accused of using confidential information to make thousands of dollars in profit by buying NFTs just before their listing on OpenSea's homepage, where their prices would immediately increase.
Once the prices had increased, Chastain would then sell the NFTs at a profit, violating his duty to keep the information confidential. The government alleged that Chastain made over $57,000 in profit from his illicit actions.
Unlike most traditional insider trading cases, prosecutors charged Chastain with wire fraud, not securities fraud, because the US government has not yet ruled whether NFTs are legally classified as a security.
Chastain had previously argued that NFTs aren't securities or commodities and therefore aren't subject to the government's theory. He also contended that he didn't commit money laundering because the transactions were made on a public blockchain.
A group of more than 300 defense attorneys filed a letter in support of Chastain's request to throw out the indictment, saying that a finding that confidential business information is property would expand how fraud is prosecuted and "criminalize a broad swath of conduct." However, US prosecutors fought back, noting that he used confidential information for personal financial gain.
"Although this case involved trades in novel crypto assets, there was nothing particularly innovative about his conduct — it was fraud," Manhattan US Attorney Damian Williams said.
Chastain faces up to 20 years in prison on both counts of wire fraud and money laundering, although his sentence could be lessened. US District Judge Jesse Furman, who presided over the trial, set Chastain's sentencing date for August 22.
An anonymous thread on Twitter in September 2021 first revealed that Chastain might be using insider information to purchase NFTs. Subsequently, OpenSea confirmed that they learned one of their employees purchased items using confidential information without disclosing that it was Chastain. He was arrested in June last year.
Chastain was hired to work for OpenSea as its product manager, where he was responsible for selecting NFTs that would be featured on OpenSea's homepage. The DOJ claimed that Chastain used OpenSea's confidential information between June 2021 and September 2021 to secretly purchase "dozens of NFTs" just before they were featured on the homepage and swiftly sell them "at profits of two- to five times."
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