Former OpenSea employee Nathaniel Chastain, 31, is awaiting trial in New York on official charges of wire fraud and money laundering.
Chastain could face up to 40 years in prison as a result of his intricate strategy to make enormous profits from NFTs using inside information.
From around June 2021 to September 2021, Chastain allegedly took advantage of a phenomenon in which customers were ready to pay a premium for non-fungible tokens exhibited on OpenSea's site and for NFTs created by the same artist whose work appeared on the homepage.
In an indictment unsealed Thursday by the United States Attorney for the Southern District of New York and a senior New York-based Federal Bureau of Investigation official, Chastain is accused of profiting from insider knowledge regarding which NFTs would appear on OpenSea's homepage by purchasing the digital items and reselling them for substantially higher prices than their initial listing prices.
Chastain purchased the NFTs with knowledge of which NFTS would be published on the homepage. Later, when they were featured on the homepage, he sold them for up to five times the initial amount.
U.S. Attorney Damian Williams stated, "NFTs may be new, but this type of criminal operation is not."
According to the allegations, Nathaniel Chastain betrayed OpenSea by utilizing its valuable company information for personal gain.
The charges filed today demonstrate the Office's commitment to eradicating insider trading, whether it occurs on the stock market or the blockchain.
Chastain utilized anonymous cryptocurrency wallets and evaded detection by using anonymous crypto wallets and accounts on OpenSea, as first noted by Twitter user Zuwu.
"Hey @opensea... why does it look @natechastain has a few hidden wallets that buy your front-page drops before they are listed, then sells them immediately after the front-page-hype surge for profits, and then tumbles them back to his regular wallet with his punk on them?"
OpenSea responded by stating that it will conduct "an urgent and complete examination of the issue," and later confirmed that a third party was examining the incident.
The corporation then updated its regulations to ban workers from purchasing or selling active marketplace collections.
Williams praised the FBI and thanked the National Cryptocurrency Enforcement Team for their assistance with the inquiry.
The Assistant Director-in-Charge of the New York Field Office of the FBI stated, "With the advent of any new financial instrument ... there will be people who exploit flaws for their own advantage."
