![]() Attorney for the Southern District of New York, that Chastain’s arrest “demonstrate the commitment of this Office to stamping out insider trading - whether it occurs on the stock market or the blockchain.” 3 FBI Assistant Director-in-Charge Michael J. This is especially true given the comment by Damian Williams, U.S. While the Chastain case involved a single employee engaged in improper activity, there are a number of important takeaways for any company engaged in the NFT market or in any digital asset endeavor. How NFT Trading Policies Can Help Companies Avoid Problems behavior was in violation of our employee policies and in direct conflict with our core values and principles.” 2 In a statement, OpenSea stated that, “When we learned of behavior, we initiated an investigation and ultimately asked him to leave the company. Indeed, Chastain was acting against OpenSea’s interests by illegally using the company’s own confidential information. OpenSea was not alleged to have been complicit and is not otherwise implicated in the indictment. Indeed, the Securities and Exchange Commission did not file a parallel enforcement action, as it often does with indictments relating to insider trading of securities. The indictment takes no position on whether the NFTs at issue were securities or commodities and therefore subject to the prohibitions against insider trading under the Securities and Exchange Act of 1934 or the Dodd-Frank Act. These charges carry potential fines tens of thousands of dollars, forfeiture of the implicated property and maximum imprisonment of 20 years for each charge. The indictment notes that Chastain had an obligation to refrain from using such information except to benefit OpenSea and had signed a confidentiality agreement with the company.Ĭhastain’s use of devices such as the internet provides the government with the “wire” necessary to establish “wire fraud.” The indictment also alleges that Chastain knowingly conducted financial transactions to conceal assets he knew to be the proceeds of illegal activity, thereby engaging in money laundering. 1956), which the government in its press release and the indictment itself characterizes as “insider trading.” Specifically, the government alleges that Chastain committed wire fraud by misusing OpenSea’s confidential business information to “pre-purchase” NFTs that were going to be featured and then resell them at a profit. 1343) and a count of money laundering (18 U.S.C. Attorney's Office for the Southern District of New York, alleges a count of wire fraud (18 U.S.C. He also used multiple anonymous digital currency wallets to move the funds to purchase the NFTs. The indictment also alleges that Chastain sought to cover his tracks by purchasing the NFTs through anonymous accounts he had set up for this purpose, instead of his public OpenSea account. 1 He then resold them for two to five times what he paid. Chastain was aware that NFTs featured by OpenSea, or other NFTs from the same creator, were likely to appreciate after they had been featured.Īccording to the recently unsealed indictment, from at least June 2021 to September 2021, on eleven separate occasions, Chastain used this confidential information to buy NFTs that were about to be featured by OpenSea or other NFTs from the same creator. Part of Chastain’s job was to select the NFTs that OpenSea would feature on its home page, information that was otherwise kept confidential until the NFTs were featured. ![]() On June 1, 2022, Nathaniel Chastain, a former product manager at OpenSea, was arrested on charges of wire fraud and money laundering. The recent indictment of the employee who allegedly engaged in such activity confirmed what many have long surmised namely, that such activity constitutes wire fraud, and a form of “insider trading.” Thus an individual with confidential information about which NFTs are about to be featured or promoted could purchase some of the NFTs for themselves in advance of the public announcement, turning a profit when the NFTs rise in value after they have been featured or promoted. NFTs that have been featured tend to appreciate in value due to the spotlight shone on them. OpenSea (operated by Ozone Networks Inc.) often features or promotes specific NFTs for sale on its home page. The recent indictment of an employee of OpenSea, a prominent NFT marketplace, highlights the risk of trading digital assets based on the improper use of confidential information, even where the digital asset is not a security. ![]()
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