Former OpenSea worker convicted in first NFT insider buying and selling case

A 32-year-old former product manager at OpenSea has been found guilty of fraudulently purchasing non-fungible tokens he knew would sharply increase in value, in the first conviction for what prosecutors described as insider trading of digital assets.

Nate Chastain, who worked at OpenSea — then the largest platform for buying and selling NFTs — was charged last year in New York with wire fraud and money laundering.

US prosecutors claimed he had bought 45 tokens over the course of approximately five months that he knew would surge in popularity once they were displayed on the site’s homepage, only to sell them soon after for between two and five times the price he paid.

The transactions were first flagged by a Twitter user in late 2021, and Chastain’s scheme was subsequently confirmed by OpenSea, which pledged to tighten its controls.

“He cheated, he stole, and he lied,” assistant US attorney Allison Nichols told jurors in closing arguments on Monday. “He saw a way to make some extra money, to capture some upside”.

She referred to messages from Chastain presented at trial in which he referred to having “FOMO” or “fear of missing out” when not buying NFTs that were set to balloon in value.

Chastain’s lawyers argued that there were “no policies, no training, no guidance” at OpenSea prohibiting the defendant from buying the NFTs in question, and that such rules were only put in place once Chastain’s transactions became a public matter.

They pointed out that when confronted by a Twitter user about his transactions in August 2021, Chastain publicly responded that he had bought a particular NFT because he “wanted to secure one of these before they all disappeared [to be honest]”.

“He told the world, and the world didn’t care — he got likes,” defence counsel Daniel Filor, of law firm Greenberg Traurig, said in closing arguments.

Prior to the week-long trial, Chastain’s lawyers had argued that an “insider trading” case required the involvement of securities or commodities, labels that they claimed did not apply to NFTs. Chastain’s actions, they said, were akin to an employee of an art gallery promoting their own painting and fetching a higher sum for it as a result.

At its peak, OpenSea facilitated more than $3.8bn in NFT transactions per month on its platform, according to data from DappRadar, with some digital artworks selling for millions of dollars. Volumes have since dropped considerably, to $200mn over the past 30 days.

In a statement shortly after the verdict, David Miller, a lawyer for Chastain, said: “We respect the jury process and appreciate the jury’s time and effort. We disagree, however, with the jury’s verdict and we are evaluating our options.”

Chastain, who was found guilty on both counts, faces a maximum of 40 years in prison. He will be sentenced at a later date.

Chastain “exploited his advanced knowledge of which NFTs would be featured on OpenSea’s website to make profitable trades for himself,” Damian Williams, the US attorney for the Southern District of New York, said. “Although this case involved trades in novel crypto assets, there was nothing particularly innovative about his conduct — it was fraud.”

While the verdict marks a significant win for the US attorney’s office, it does not necessarily pave the way for a wave of NFT insider trading cases.

“I am not sure it opens the floodgates because the charges here and the verdict really stayed away from whether an NFT is a security,” said Joshua Newville, a partner at Proskauer.

“I would assume the jury decided that this is property that OpenSea was taking some steps to protect.”

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