Crypto Gets Its First-Ever Insider Trading Indictment

OpenSea is the largest NFT marketplace in the world.
Illustration: Konstantin Sergeyev

The world of NFTs, which exploded last year amid pandemic-induced cryptomania, reached a fun new milestone today: its first misdemeanor indictment.

On Wednesday, the Justice Department indicted Nathaniel Chastain, a former Harvard poetry student and mad magazine prankster, with a single charge of wire fraud and money laundering for allegedly ruling the crypto markets by buying 45 NFTs and then reselling them soon after for at least double the money – ​​​​and sometimes five times more, according to the indictment. He was arrested this morning in New York and faces up to 40 years in prison for allegedly abusing his position at OpenSea, the Andreessen Horowitz-backed platform for buying and selling so-called non-fungible tokens.

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The nature of the whole pattern is very particular to the crypto world last summer. For those who have learned to disconnect when someone says the word “blockchain”, NFTs are digital assets that cannot be copied over and over again, giving the holder ownership rights – often to an image or original artwork. At the time of Chastain’s alleged profits, crypto assets were on the verge of peaking in sales, propelled by the popularity of cartoonish doodle collections, and now include the famous Bored Ape Yacht Club. Some are worth millions. The problem with NFTs was that, like many other types of art, their value was largely due to their speed, with most of them being functionally worthless.

Chestnut was not created from NFT. He was a passionate person who adopted the personality of his blue haired pirate Avatar Twitter NFT online. More importantly, however, he was a product manager for OpenSea and was particularly responsible for overseeing the homepage of the famous NFT Marketplace. In this work, he selected the NFTs which would be featured on the homepage, consequently which would get the most audience. “Chastain also knew that the value of an NFT generally increased after it became a featured NFT,” according to the indictment. What Chastain allegedly did, from June to September last year, was create anonymous digital wallets, buy NFTs before they hit the homepage – at a time when they would be less expensive – then reselling them soon after for a nice profit. Certain NFTs detailed in the indictment will now become his purchase history.

The whole thing was discovered last September by a crypto personality who goes by 0xZuwu on Twitter. The NFT investor was able to trace the sales back to Chastain and posted everything online. Soon Chastain lost his job and OpenSea confirmed that the secret buying and selling before the homepage marketing campaign had taken place. Chastain never responded to the comments and his Twitter page went silent.

After the Justice Department filed the indictment, crypto Twitter was stirred by the prospect that they might have to play by the same rules as the rest of the world. The Department of Justice alleges that its knowledge of what was going to be traded and when is considered confidential information and that trading on that knowledge is an abuse of market integrity. For years, the industry has been able to shapeshift around new fashions as federal regulators continue to define basic definitions of cryptocurrencies and whether digital assets should be regulated like stock or commodity markets. raw. But that may be coming to an end. It’s been a tough year for the industry, with bizarre rappers accused of money laundering and people losing their life savings in spectacular meltdowns. Chastain risks being the face of a new frontier in crypto fraud.



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Crypto Gets Its First-Ever Insider Trading Indictment


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