Ex-OpenSea employee charged in first NFT insider trading case

Federal prosecutors have arrested a former employee of the largest online marketplace for non-fungible tokens on charges of using company information for personal financial gain, making it the United States' first insider trading case involving digital assets.

The Justice Department announced in a statement that prosecutors in New York on Wednesday unsealed an indictment charging Nathaniel Chastain, 31, with one count of wire fraud and one count of money laundering, each of which carry a 20-year maximum prison sentence.

The New York resident was arrested Wednesday morning before making his first appearance at the U.S. District Court for the Southern District of New York.

"NFTs might be new, but this type of criminal scheme is not," U.S. Attorney Damian Williams said.

According to a February Treasury report on money laundering and terror finance through the trade of artworks, NFTs are publicly verifiable blockchain-based digital tokens representing ownership of images, videos and audio files as well as other forms of media.

These digital tokens are sold online, with the market for NFTs producing more than $1.5 billion in trading during the first three months of last year, the report said.

Federal prosecutors charged Chastain, a former employee of OpenSea, the largest NFT marketplace, with exploiting his advanced knowledge of which NFTs would be featured on the company's homepage for personal again.

The charging document states that information about which NFTs would be selected for the website was kept secret as after the digital tokens were featured the price consumers were would pay for them "typically increased substantially."

Chastain was responsible for selecting which NFTs would be featured on OpenSea's homepage, and he secretly purchased dozens of these digital assets and sold them at a profit shortly after they were featured on his company's website, prosecutors said, adding the scheme ran from from June to September of last year.

To conceal his identity, Chastain is accused of using anonymous digital currency wallets and anonymous accounts on OpenSea to buy and sell the NFTs, prosecutors said.

"With the emergence of any new investment tool, such as blockchain-supported non-fungible tokens, there are those who will exploit vulnerabilities for their own gain," FBI Assistant Director-in-Charge Michael Driscoll said. "The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way."