Nate Chastain, the former product head at the NFT marketplace OpenSea, has been handed a three-month jail term for making substantial profits from insider trading of assets displayed on the platform’s main page.
Chastain, who previously had the duty of showcasing top NFTs on OpenSea, was convicted of fraud and money laundering in May.
While he could have faced up to 20 years in prison for each charge, his sentencing was decided in a New York federal court, wrapping up what legal authorities dubbed the first major NFT insider trading case.
Chastain, arrested in June, raked in over $50,000 by transacting at least 45 NFTs he had prior knowledge would be highlighted on OpenSea’s main page.
As per the Department of Justice’s communication after his capture, Chastain concealed his activities by utilizing undisclosed wallets and OpenSea profiles to purchase and offload forthcoming NFTs.
The defense for Chastain argued for the case’s dismissal, positing that NFTs, unique digital tokens signifying ownership of assets such as digital art, shouldn’t be classified as securities. Moreover, they contended that Chastain utilized information that wasn’t confidential. However, the judge didn’t accept these arguments, paving the way for the trial.
Even before any formal charges, the CryptoTwitter community had already shed light on Chastain’s activities. Twitter sleuths had managed to link “burner” wallets back to Chastain, tracing the flow of Ethereum from NFT transactions directly to his primary wallet. Interestingly, this primary wallet housed a CryptoPunk NFT, which Chastain proudly displayed as his Twitter avatar.
Authorities labeled this incident as the pioneering case of insider trading involving digital tokens. Chastain has now been mandated to forfeit the profits he acquired illicitly.
Insider Trading Scandal at OpenSea Leads to Arrest and Resignation: NFT Market Impacted
Insider trading typically pertains to the illicit act of trading in securities based on confidential information, placing personal profit over obligations to the employer or the general public.
After departing from OpenSea in 2021, Chastain found himself under arrest. The company had requested his resignation after an internal inquiry determined that he had breached its commitment to its user base.
At that time, OpenSea reigned as the premier platform for NFT sales. Chastain’s share in the company, worth several millions as stated by his legal team, was confiscated.
While prosecutors had initially suggested a sentence close to two years, referencing a former insider trading instance related to Coinbase, the judge opted for a milder punishment. The rationale behind the reduced sentence was the comparatively modest profit Chastain garnered from his illicit trades.
It’s worth noting that the NFT marketplace had surged to an impressive $40 billion valuation during the time Chastain committed the offense.
“Insider trading, irrespective of the marketplace it occurs in, will not be overlooked,” asserted U.S. Attorney Damian Williams in a statement released on Monday.
The Department of Justice (DOJ) added details regarding Chastain’s future after his imprisonment: he will be subjected to an additional three months of house arrest followed by three years of supervised release.
The mentioned insider trading incident at Coinbase involved Ishan Wahi. Formerly an employee in the capacity of a product manager at the cryptocurrency platform Coinbase, Wahi received a two-year prison sentence in May for two charges related to conspiracy to commit wire fraud.
Wahi, in collaboration with his brother and a close associate, leveraged inside knowledge about impending token listings to capitalize on the “Coinbase effect.”
Subsequent to the DOJ’s charges, the Securities and Exchange Commission (SEC) slapped Wahi with accusations of violating securities regulations in a separate incident.
This dispute came to a close in May when Wahi confessed to his involvement in a plot that generated an illicit profit of $1.1 million.