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OpenSea’s former head of product was sentenced to three months in prison on Tuesday for using inside knowledge at the NFT marketplace to flip assets featured on its homepage.
Nathaniel Chastain, who was once responsible for deciding which NFTs would be given a prominent spot on OpenSea as part of his job, was convicted of fraud and money laundering in May. He potentially faced up to 20 years in prison for each charge.
The FBI and U.S. Department of Justice (DOJ) accused Chastain of illegally making more than $50,000 in profit from trading NFTs when he was arrested last June. At the time, authorities said it was the first-ever insider trading scheme involving digital assets. He's since been ordered to return his ill-gotten gains.
Insider trading is illegal when a person trades securities based on nonpublic information to their own benefit, putting profits over an obligation to their employer or the public.
Chastain’s lawyers had argued the case should be dismissed because NFTs—unique digital tokens that correspond to the ownership of an asset, often digital art—are not securities, and Chastain leveraged info that was not confidential. A judge was not convinced and let the case proceed to trial.
Chastain’s arrest came months after his departure from OpenSea in 2021. The firm requested his resignation after an investigation found he “violated” an obligation to OpenSea’s community. At the time, OpenSea was the leading venue for NFT sales. Chastain has since lost his equity in the company, which his attorneys have said was worth millions.
Chastain made an effort to conceal his trades by creating several digital wallets and OpenSea accounts to scoop up and sell soon-to-be-featured NFTs, the DOJ said after his arrest. But Chastain’s misconduct had already been called out on Crypto Twitter.
Before he was charged, Twitter users had linked so-called “burner” wallets to Chastain, where Ethereum from the NFT sales was routed back to his main wallet. Chastain’s main wallet contained a CryptoPunk NFT that he used as his profile picture on Twitter.
Insider trading has been the crux of other cases involving digital assets that have reached recent resolutions too.
A former product manager at the crypto exchange Coinbase, Ishan Wahi, received a two-year sentence in May on two counts of conspiracy to commit wire fraud. Wahi, his brother, and a friend used inside knowledge about incoming token listings to profit from the “Coinbase effect.”
After the DOJ charged Wahi, the Securities and Exchange Commission (SEC) claimed he violated securities laws in a separate lawsuit. Those claims were settled in May after Wahi had already pleaded guilty to a scheme that generated $1.1 million in illicit profits.