A former OpenSea executive, Nathaniel Chastain, has been arrested and charged by the FBI on wire fraud and money laundering charges, as per reports. This is the first time anyone has been tried by U.S. officials for an apparent insider trading on an NFT platform.
Chastain had gotten into the controversy after Twitter user 0xZuwu.eth unearthed allegations against him in September.
The indictment reveals that the former head of product Chastain managed and selected NFTs that would be featured on OpenSea’s home page. As he was aware that the value of featured NFTs would soon jump, Chastain persistently purchased NFTs from soon-to-be-featured artists and then sold them at much higher prices.
FBI agents disclosed that in August last year, Chastain bought 10 NFTs from a series dubbed “Flipping and Spinning” before it was featured. After the feature, Chastain sold them for prices between 250% and 300% more than what he initially paid.
U.S. Attorney Damian Williams said in a statement, “NFTs might be new, but this type of criminal scheme is not.”
The statement further said that as alleged, Nathaniel Chastain ‘betrayed’ OpenSea by using its confidential business data to make money for himself.
As per the indictment, Chastain resorted to anonymous Ethereum wallets instead of his public Ethereum wallet to hide his activities. Even so, the transparency of the blockchain mechanism could track how these NFTs ended up in Chastain’s public wallet.
Following the initial allegations of insider trading made by 0xZuwu.eth via screenshots that recorded the suspicious transactions, Chastain was let free and OpenSea changed their policies.
Chastain resigned from OpenSea and then founded a startup called Oval, an NFT platform to search for new creators easily.
Around this controversy, Devin Finzer, CEO of OpenSea, stated, “OpenSea team members may not buy or sell from collections or creators while we are featuring or promoting them. Employees are also now prohibited from buying or selling NFTs using confidential information, even if the NFT is being sold on different platforms.”
FBI Assistant Director-in-Charge Michael J. Driscoll also stated that as the emergence of investment tools like blockchain supports NFTs, some people will exploit vulnerabilities for their own gain. For this, the FBI will continue to aggressively pursue agents who are involved in the manipulation of the market in this way.
Chastain has been charged with wire fraud and money laundering. The indictment also reveals that the Justice Department is seeking forfeiture of any and all the property involved in the offense.
It further added that if the assets have considerably diminished in value, the Justice Department has plans to confiscate equivalently priced property from Chastain.