A former product manager at OpenSea, the largest marketplace for non-fungible tokens (NFTs), has been found guilty of one count of wire fraud and one count of money laundering. Each count carries a maximum prison sentence of 20 years, according to a press release from the Justice Department. Federal prosecutors say the conviction marks the first insider trading case involving NFTs, Reuters reports.
“Nathaniel Chastain exploited his advanced knowledge of which NFTs would be featured on OpenSea’s website to make profitable trades for himself,” US Attorney for the Southern District of New York Damian Williams said in a statement. “Although this case involved trades in novel crypto assets, there was nothing particularly innovative about his conduct — it was fraud.”
In June of last year, the US Attorney’s office in Manhattan charged Chastain after the former employee’s suspicious transactions were leaked on Twitter. The post revealed that Chastain had used anonymous OpenSea accounts to acquire NFTs that he knew were going to be featured on the marketplace’s homepage and subsequently increase in value.
After buying the digital tokens and waiting for their value to rise, Chastain then sold the NFTs, accumulating over $50,000 in illegal profits, Reuters reported. Chastain pleaded not guilty.
Throughout the trial, his lawyers argued that Chastain had done nothing wrong since OpenSea had never stipulated that prior knowledge of which assets would be featured on the platform’s homepage was considered confidential. OpenSea — which was valued at $13.3 billion last year —says it has since introduced new policies to prevent team members from engaging in unlawful trading going forward.
Prosecutors pointed out that Chastain’s use of secret accounts to hide his questionable trades proves that he knew he was committing a crime.
“He abused his status at OpenSea to line his own pockets and he lied to cover his tracks,” federal prosecutor Thomas Burnett said in his closing statement earlier this week, according to reporting by Reuters.
David I. Miller, the attorney who represented Chastain, responded to Hyperallergic‘s inquiry with the following statement: “We respect the jury process and appreciate the jury’s time and effort. We disagree, however, with the jury’s verdict and we are evaluating our options.”
OpenSea has not yet responded to a request for comment.