Federal Prosecutors Secure First Ever Crypto Insider Trading Conviction in OpenSea NFT Case | Practical Law

Federal Prosecutors Secure First Ever Crypto Insider Trading Conviction in OpenSea NFT Case | Practical Law

A federal jury in the US District Court for the Southern District of New York found Nathaniel Chastain, a former manager at OpenSea, a well-known market for non-fungible tokens (NFTs), guilty of wire fraud and money laundering in connection with his purchase and sale of NFTs which he knew would be featured on OpenSea. This is the first conviction obtained in a crypto insider trading case.

Federal Prosecutors Secure First Ever Crypto Insider Trading Conviction in OpenSea NFT Case

by Practical Law Finance
Published on 08 May 2023 • USA (National/Federal)
A federal jury in the US District Court for the Southern District of New York found Nathaniel Chastain, a former manager at OpenSea, a well-known market for non-fungible tokens (NFTs), guilty of wire fraud and money laundering in connection with his purchase and sale of NFTs which he knew would be featured on OpenSea. This is the first conviction obtained in a crypto insider trading case.
On May 3, 2023, a federal jury in the US District Court for the Southern District of New York (SDNY) found Nathaniel Chastain, a former manager at Ozone Networks, Inc. d/b/a OpenSea (OpenSea) guilty of wire fraud and money laundering in connection with his purchase and later sale of non-fungible tokens (NFTs) featured on the OpenSea website. Using anonymous OpenSea accounts and digital currency wallets, Chastain used his inside knowledge to purchase NFTs that he knew would be featured on OpenSea and would become significantly more valuable once featured on OpenSea, the world's largest NFT marketplace.
This is the first conviction obtained in an insider trading case involving digital assets on a crypto-asset platform. US Attorney Damian Williams issued a statement in connection with the conviction. The US Attorney's Office originally unsealed the indictment of Chastain on June 1, 2022 (see Legal Update, Updated: DOJ and SEC File First Crypto Insider Trading Actions: OpenSea Insider Trading Case).
The US Attorney's Office for the Southern District of New York had previously obtained two guilty pleas from defendants in connection with schemes to commit insider trading in NFTs on major crypto exchange Coinbase:
  • On February 7, 2023 the US Department of Justice (DOJ) announced that former Coinbase product manager Ishan Wahi had pled guilty to two counts of conspiracy to commit wire fraud (see Legal Update, Updated: DOJ and SEC File First Crypto Insider Trading Actions: Coinbase Insider Trading Case). On May 10, 2023, in connection with his guilty plea, DOJ announced that Ishan Wahi had been sentenced to a two-year prison term and ordered to forfeit crypto assets that he had received in connection with the Coinbase scheme.
  • On September 12, 2022, DOJ announced that Nikhil Wahi, brother of Ishan Wahi, had pled guilty to conspiracy to commit wire fraud. On January 10, 2023, DOJ announced that Nikhil Wahi was sentenced to 10 months in prison for his participation in the scheme and ordered to pay $892,500 in forfeiture.
Update: On August 22, 2023, US District Judge Jesse Furman sentenced Nathaniel Chastain to three months in prison to be followed by three months of home confinement plus 200 hours of community service following his imprisonment. The judge also ruled Chastain must pay a $50,000 fine and forfeit 15.98 ether, currently worth about $26,000.
Update: On September 1, 2023, Nathaniel Chastain filed a notice of appeal to the US Court of Appeals for the Second Circuit of the judgment and sentence entered against him in the SDNY.