Author: Syedur Rahman 3 June 2022
In a legal first, a man has been charged in the US with wire fraud and money laundering regarding insider trading in non-fungible tokens (NFTs).
Nathaniel Chastain, a former product manager at the OpenSea marketplace, is accused of using confidential information about what NFTs were going to be featured on OpenSea’s homepage for his personal financial gain.
While NFTs are a relatively new concept, insider trading is not. Chastain’s prosecution is the first insider trading case involving NFTs, but the illegal practice has gone on for years on stock markets,
OpenSea is the largest online marketplace for the purchase and sale of NFTs. One of Chastain’s duties was to select the NFTs that were placed on its homepage. Once an Non-Fungible Token'>NFT had featured on the OpenSea homepage, buyers were likely to pay more for it and for others by its creator.
This, according to prosecutors, led to Chastain buying NFTs prior to them going on OpenSea’s home page and then selling them at between two to five times what he had paid for them. He is alleged to have tried to conceal his illegal activities by conducting the purchases and sales using anonymous digital currency wallets and anonymous accounts on OpenSea.
The 31-year-old is 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.
The fact that Chastain has been charged gives him the unwanted distinction of being the first to be prosecuted for NFT insider trading. While he is presumed innocent until proven guilty, the case does indicate that the authorities – in the US at least – are alert to the possibility of insider trading in NFTs.
NFTs are like many other assets: those looking to make illegal gains will recognise the opportunity to use them as a vehicle for wrongdoing. As NFTs are very much the new kid on the block in terms of assets and investment, it would be unsurprising if many more such insider trading cases found their way to court. Much, however, may depend on the authorities’ responsiveness to the threat and the ability of those involved with NFTs to prevent and/or identify wrongdoing.
Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.