Nathaniel Chastain, a former product manager for the online marketplace OpenSea, has been indicted and detained by US authorities in New York’s Southern District.

The 31-year-old is charged with one count of wire fraud and one count of money laundering in connection with a scheme to engage in insider trading in non-fungible tokens, or NFTs, “by exploiting confidential information about which NFTs would be featured on OpenSea’s homepage for his personal financial gain.”

According to the Department of Justice, each offense carries a potential punishment of 20 years in prison.

Prosecutors in the United States are increasingly pursuing insider trading in the cryptocurrency business.

Nathaniel Chastain, a former product manager for the online marketplace OpenSea, was indicted and detained by authorities in New York’s Southern District on Wednesday. The 31-year-old is charged with one count of wire fraud and one count of money laundering in connection with a scheme to engage in insider trading in non-fungible tokens, or NFTs, “by exploiting confidential information about which NFTs would be featured on OpenSea’s homepage for his personal financial gain.”

According to the Department of Justice, each offense carries a potential punishment of 20 years in prison.

Officials with the Department of Justice claim that this is the first time they have sought an insider trading prosecution utilizing digital assets.

Chastain’s purported strategy was rather straightforward.

Chastain was entrusted with choosing NFTs to be highlighted on OpenSea’s site, according to the indictment. Because a main page listing typically translated to a price increase for both the featured NFT and NFTs manufactured by the same author, OpenSea kept those homepage picks secret until they were live.

According to the indictment, Chastain would acquire an NFT in secret from June to September 2021, shortly before OpenSea showcased it on the main page of its website. He allegedly planned to sell those NFTs “at profits of two to five times his initial purchase price” if they made it to the front page.

He used anonymous digital currency wallets and anonymous identities on OpenSea to hide his traces, according to the DOJ, which claims this happened thousands of times.

“While NFTs are new, this sort of illegal enterprise is not,” U.S. Attorney Damian Williams said. “Today’s accusations illustrate this Office’s commitment to combating insider trading, whether it takes place on the stock market or on the blockchain.”

Michael J. Driscoll, the FBI’s Assistant Director-in-Charge, said the bureau will continue to prosecute those who choose to manipulate the market in this fashion.

The start-up was rather lenient with respect to limitations around workers accessing sensitive information to invest in NFTs until September 2021, when Chastain’s alleged unlawful conduct first came to light.

Since then, the company has implemented two new employee policies, including prohibiting OpenSea employees from purchasing or selling from collections or creators while they are being featured or promoted by the company, as well as prohibiting employees from “using confidential information to purchase or sell any NFTs, whether available on the OpenSea platform or not.”

The entire episode exposes the regulatory vacuum that exists in broad parts of the crypto economy. NFTs, in particular, occupy a legal limbo. They aren’t legally classified as securities, and there isn’t much in the way of legal precedent for digital assets in general. So it was unclear if authorities would pursue insider trading of NFTs until today’s arrest.

The OpenSea affair, according to London-based fintech data researcher Boaz Sobrado, demonstrates two things. First, because all exchanges are public and recorded in perpetuity, the blockchain’s openness makes it a valuable tool for monitoring criminal conduct. Regulators, however, had done nothing with the information until today’s arrest.

“Right now, there’s a lot of talk about regulation, but what a lot of these terrible actors are doing is definitely illegal.” “Regulators’ powers do not need to be strengthened to prevent this type of fraud and false assertions,” Sobrado added.

Sobrado pointed out that money is so loose in the sector that criminals are skipping over the most basic efforts to hide their trails.

“This, once again, is symptomatic of the kind of wanton madness that is currently prevalent in the business,” he added. “While things are going well and everyone feels wealthy, it isn’t widely discussed. However, as soon as the market falls, a lot of these people will be exposed, and a lot of people will be unhappy.”

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