NFT insider trading scheme charges are a 1st, feds say
Yesterday
NEW YORK (AP) — A former product manager at an online marketplace was arrested Wednesday in what federal authorities called the first ever digital asset insider trading scheme involving NFTs.
Nathaniel Chastain, a former employee of a company that does business as OpenSea, was arrested in Manhattan. He was later released on $100,000 bail after entering a not guilty plea to wire fraud and money laundering charges.
Chastain, 31, and his lawyers declined comment immediately after the Manhattan federal court hearing.
U.S. Attorney Damian Williams said the charges were a first because they pertained to NFTs, or non-fungible tokens, that provide digital ownership of art and other content.
Michael J. Driscoll, head of New York's FBI office, said Chastain used his knowledge of confidential information to buy dozens of NFTs in advance of them being featured on OpenSea's homepage. OpenSea is the largest online marketplace for the purchase and sale of NFTs, authorities noted.
Driscoll said the emergence of any new investment tool such as “blockchain supported non-fungible tokens” will lead some to exploit its vulnerabilities for illegal profits.
“NFTs might be new, but this type of criminal scheme is not," Williams said. "Nathaniel Chastain betrayed OpenSea by using its confidential business information to make money for himself. Today’s charges demonstrate the commitment of this Office to stamping out insider trading — whether it occurs on the stock market or the blockchain.”
Chastain, as part of his job, was responsible for selecting NFTs to be featured on OpenSea's homepage, authorities said. They added that price buyers were usually willing to pay more for an NFT once it was featured on OpenSea's homepage, enabling Chastain to sell them at two- to five-times his initial purchase price.
He concealed the fraud by conducting the purchases and sales through anonymous digital currency wallets and anonymous accounts at OpenSea, authorities said.
Larry Neumeister, The Associated Press
Ex-OpenSea employee charged in first NFT insider trading case
"A Single Number That Has 10,000,086 Digits" by Ryoji Ikeda is on display along with other NFT art at Sotheby's first physical exhibition of NFTs, featuring the first NFT ever minted presented in partnership with Samsung on, June 4, 2021, in New York City. On Wednesday, federal prosecutors announced the United States first insider trading case involving NFTs.
The charging document states that information about which NFTs would be selected for the website was kept secret as after the digital tokens were featured the price consumers were would pay for them "typically increased substantially."
Chastain was responsible for selecting which NFTs would be featured on OpenSea's homepage, and he secretly purchased dozens of these digital assets and sold them at a profit shortly after they were featured on his company's website, prosecutors said, adding the scheme ran from from June to September of last year.
To conceal his identity, Chastain is accused of using anonymous digital currency wallets and anonymous accounts on OpenSea to buy and sell the NFTs, prosecutors 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," FBI Assistant Director-in-Charge Michael Driscoll said. "The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way."
"A Single Number That Has 10,000,086 Digits" by Ryoji Ikeda is on display along with other NFT art at Sotheby's first physical exhibition of NFTs, featuring the first NFT ever minted presented in partnership with Samsung on, June 4, 2021, in New York City. On Wednesday, federal prosecutors announced the United States first insider trading case involving NFTs.
Photo by John Angelillo/UPI | License Photo
June 1 (UPI) -- Federal prosecutors have arrested a former employee of the largest online marketplace for non-fungible tokens on charges of using company information for personal financial gain, making it the United States' first insider trading case involving digital assets.
The Justice Department announced in a statement that prosecutors in New York on Wednesday unsealed an indictment charging Nathaniel Chastain, 31, with one count of wire fraud and one count of money laundering, each of which carry a 20-year maximum prison sentence.
The New York resident was arrested Wednesday morning before making his first appearance at the U.S. District Court for the Southern District of New York.
"NFTs might be new, but this type of criminal scheme is not," U.S. Attorney Damian Williams said.
According to a February Treasury report on money laundering and terror finance through the trade of artworks, NFTs are publicly verifiable blockchain-based digital tokens representing ownership of images, videos and audio files as well as other forms of media.
These digital tokens are sold online, with the market for NFTs producing more than $1.5 billion in trading during the first three months of last year, the report said.
Federal prosecutors charged Chastain, a former employee of OpenSea, the largest NFT marketplace, with exploiting his advanced knowledge of which NFTs would be featured on the company's homepage for personal again.
June 1 (UPI) -- Federal prosecutors have arrested a former employee of the largest online marketplace for non-fungible tokens on charges of using company information for personal financial gain, making it the United States' first insider trading case involving digital assets.
The Justice Department announced in a statement that prosecutors in New York on Wednesday unsealed an indictment charging Nathaniel Chastain, 31, with one count of wire fraud and one count of money laundering, each of which carry a 20-year maximum prison sentence.
The New York resident was arrested Wednesday morning before making his first appearance at the U.S. District Court for the Southern District of New York.
"NFTs might be new, but this type of criminal scheme is not," U.S. Attorney Damian Williams said.
According to a February Treasury report on money laundering and terror finance through the trade of artworks, NFTs are publicly verifiable blockchain-based digital tokens representing ownership of images, videos and audio files as well as other forms of media.
These digital tokens are sold online, with the market for NFTs producing more than $1.5 billion in trading during the first three months of last year, the report said.
Federal prosecutors charged Chastain, a former employee of OpenSea, the largest NFT marketplace, with exploiting his advanced knowledge of which NFTs would be featured on the company's homepage for personal again.
The charging document states that information about which NFTs would be selected for the website was kept secret as after the digital tokens were featured the price consumers were would pay for them "typically increased substantially."
Chastain was responsible for selecting which NFTs would be featured on OpenSea's homepage, and he secretly purchased dozens of these digital assets and sold them at a profit shortly after they were featured on his company's website, prosecutors said, adding the scheme ran from from June to September of last year.
To conceal his identity, Chastain is accused of using anonymous digital currency wallets and anonymous accounts on OpenSea to buy and sell the NFTs, prosecutors 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," FBI Assistant Director-in-Charge Michael Driscoll said. "The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way."
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