Ex-OpenSea Worker Found Guilty in First NFT Insider-Trading Case
Nathaniel Chastain convicted of using confidential information to trade on digital tokens
A former employee of NFT marketplace OpenSea was found guilty Wednesday of what federal prosecutors described as the first insider-trading case involving digital tokens, marking a win for the Justice Department in its push to police the crypto industry.
A federal jury in New York convicted Nathaniel Chastain of wire fraud and money laundering for using nonpublic information from his employer to trade on nonfungible tokens in 2021. The Manhattan U.S. attorney’s office charged Mr. Chastain in 2022, accusing him of purchasing the NFTs ahead of OpenSea’s featuring them on its home page. Once the NFTs spiked in value after being featured, Mr. Chastain sold them, pocketing tens of thousands of dollars in profit, prosecutors said.
“He had information that would give him a leg up on every other NFT trader,” Assistant U.S. Attorney Thomas Burnett said during closing arguments.
The five-day trial, which started last week, was the latest example of the Justice Department’s ramped-up law enforcement efforts against the lightly regulated crypto industry.
Mr. Chastain had denied the charges.
“We respect the jury process and appreciate the jury’s time and effort,” David Miller, a lawyer for Mr. Chastain, said in a statement after the conviction. “We disagree, however, with the jury’s verdict and we are evaluating our options.”
Ahead of the trial, his lawyers unsuccessfully fought to scrub any mention of insider trading from the case, arguing that prosecutors were taking liberties with the term. Prosecutors didn’t bring traditional insider-trading charges against Mr. Chastain, which involve securities or commodities violations, they said.
Daniel Filor, a lawyer for Mr. Chastain, sought to make the distinction during closing arguments, telling jurors that NFTs weren’t regulated like other industries.
“It’s not the stock market,” Mr. Filor said.
Mr. Chastain’s case ultimately centered on whether the information he used to purchase the NFTs was actually confidential.
Prosecutors said that when he was hired, he signed a confidentiality agreement that covered the information about upcoming featured NFTs. They presented Slack communications between him and a co-worker that they say showed he knew the scheme was wrong. Mr. Chastain also went to great lengths to conceal his identity in the transactions, they said.
OpenSea, the largest NFT marketplace, was a fledgling startup when Mr. Chastain was an employee, having at the time fewer than a dozen workers and no general counsel or compliance officer. Mr. Filor described the confidentiality agreement as a boilerplate contract downloaded from a legal services website. OpenSea had no clear policy or training for employees about what was considered confidential information, he said.
Mr. Chastain, a product manager, was in charge of choosing which NFTs to feature on the home page. OpenSea didn’t treat his feature choices as confidential and the company only cared that the home page looked pretty, his lawyers argued.
“Nobody ever told Nate that the NFT he chose to feature was a secret,” Mr. Filor said.