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A former employee of OpenSea (Ozone Networks, Inc.) has been arrested and charged with the first-ever digital asset insider trading scheme, according to the US Department of Justice (DOJ).
Nathanial Chastain a former Product Manager at OpenSea has been charged with wire fraud, and money laundering in regards to allegations of insider trading of NFTs or non-fungible tokens. According to the DOJ, Chastain leveraged confidential information about which NFTs were scheduled to be featured on the OpenSea home page for personal benefit.
Chastain was said to have been responsible for selecting the NFTs to be featured by OpenSea thus driving more purchasing interest by users. Once an NFT was promoted on the homepage, the DOJ reports these digital assets, along with others affiliated with the creator, would increase in value.
Chastain was said to have purchased these NFTs via anonymous digital wallets and then sold them for 2X to 5X their initial value.
OpenSea is currently the largest NFT operation in the market.
Chastain was arrested in New York City yesterday and presented to the United States District Court for the Southern District of New York.
U.S. Attorney Damian Williams commented on the case:
“NFTs might be new, but this type of criminal scheme is not. As alleged, 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.”
Michael J. Driscoll, FBI Assistant Director-in-Charge said the allegations indicated that Chastain launched a scheme to commit insider trading by using his knowledge of confidential information to purchase dozens of NFTs in advance of them being featured on OpenSea’s homepage.
“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. The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way.”
Chastain, while innocent until proven guilty, has been charged with one count of wire fraud and one count of money laundering, each of which carries a maximum sentence of 20 years in prison.