Former OpenSea Exec Charged With Insider Trading. Should Users Be Worried?

Published on June 2, 2022

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KEY POINTS

Nate Chastain was arrested Wednesday morning for insider trading on dozens of NFTs on the OpenSea marketplace.
By using confidential knowledge of NFTs that were not yet featured, he used several wallets to purchase NFTs, to sell them once they dropped at a substantial gain.
Although this is the first charge of this kind from the FBI, it is not an uncommon practice and crypto investors should expect to see more regulation and justice going forward.

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In the first-ever charge of its kind, Nate Chastain answers to a digital-asset trading scheme.

On Wednesday morning, Nate Chastain was arrested to be presented in court on charges of "wire fraud and money laundering in connection with a scheme to commit insider trading," according to a press release from the Department of Justice U.S. Attorney's Office of the Southern District of New York (SDNY).

Chastain was the head of product at OpenSea, the largest online NFT marketplace. He allegedly was "front-running" which in crypto is when someone with knowledge of a future transaction or drop, places a transaction in a queue, knowing it will be profitable. Essentially, someone with access to information about impending deals uses that information to enter the market ahead of the general public.

The crime

In this case, Chastain used his knowledge of which NFTs were going to be dropped on OpenSea's homepage to purchase dozens of them ahead of time and then turn around to sell them at a substantial profit.

It was brought to light in September 2021. An NFT collector followed the questionable transactions from one of Chastain's wallet addresses before posting on Twitter, "Hey @opensea why does it appear @natechastain has a few secret wallets that appears to buy your front page drops before they are listed, then sells them shortly after the font-page-hype spike for profits, and then tumbles them back to his main wallet with his punk on it?" Not long after Chastain left OpenSea.

The aftermath

Should this be a reason to worry? Well, when large sums of money are being traded, it is unfortunately synonymous with fraudulent schemes. If anything, there is comfort in OpenSea's swift action and the promptness of the SDNY. The attorney representing SDNY, Damian Williams, said, "NFTs might be new, but this type of criminal scheme is not. As alleged, Nathaniel Chastain betrayed OpenSea by using its confidential business information to make money for himself. Today's charges demonstrate the commitment of this Office to stamping out insider trading -- whether it occurs on the stock market or the blockchain." His partner added that the FBI will "continue to aggressively pursue actors who choose to manipulate the market in this way."

If NFTs are something you want to understand more about, check out our guide to NFT investing.

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Katie Clinebell

Katie Clinebell is a freelance content creator and digital marketing strategist for FinTech, blockchain, and crypto brands. She has created award-winning campaigns for Snapple and Tai Pei Frozen Asian Food and received an Adobe Academic Achievement Award for content about Olympic athletes.

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