Nathaniel Chastain, a former product manager at the world’s largest Non-fungible tokens (NFT) marketplace, OpenSea, has been convicted by a jury for NFT insider trading on the marketplace.
According to a Reuters report on Wednesday, May 3rd, manager Nathaniel Chastain was convicted of fraud and money laundering for using inside knowledge of which assets would be featured on the OpenSea home page to trade NFTs, the activity that generated for him more than $50,000 in profits.
— US Attorney SDNY (@SDNYnews) May 3, 2023
A Landmark Case for NFTs’ Future
As Blockchain Journal reported, The US Department of Justice (DOJ) ‘s attorney for the Southern District of New York charged Chastian,31, of New York, on June 1st, 2022, with one count of wire fraud and one count of money laundering after he was arrested on that same day.
According to the indictment filed in the Manhattan court, from June 2021 to September 2021, Chastain launched an “age-old 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”.
As part of his role in the company, he was responsible for selecting the NFTs to be featured on the marketplace home page. These were confidential information, but the product manager used them for his personal financial gains by buying NFTs in advance and then selling them at profits of two to five times the initial price after they went on sale on the marketplace. He used anonymous NFT wallets and anonymous accounts on OpenSea to conduct the transactions.
Chastain pleaded not guilty to the charges. Reuters reported that his lawyer Daniel Filor argued that the manager was not guilty because OpenSea didn’t treat information as confidential during the time of his trades. “Nobody told Nate that he couldn’t use or share that information,” told his lawyer to the jury. The prosecution argued that he knew he was doing wrong as he used anonymous accounts.
The report suggests Chastain made over $50,000 in dozens of illegal NFT trades. He was asked to resign by the NFT powerhouse in September 2021, to which the company said he violated employee policies.
After the DOJ charges, he filed five motions to drop the charges and exclude the term insider trading arguing that NFTs are not securities. Nevertheless, the judge denied the motion, and the jury found him guilty of NFT fraud and money laundering. Each charge carries a maximum sentence of 20 years in prison.
Experts believe it is a landmark case and might significantly influence the legal classification of NFTs. It is feared that the outcome of this case will cement the NFTs’ classification as securities.