NFT insider trading scheme charges are a 1st, feds say

NEW YORK (AP) — A former product manager at an online marketplace was arrested Wednesday in what federal authorities called the first ever digital asset insider trading scheme involving NFTs.

Nathaniel Chastain, a former employee of a company that does business as OpenSea, was arrested in Manhattan. He was later released on $100,000 bail after entering a not guilty plea to wire fraud and money laundering charges.

Chastain, 31, and his lawyers declined comment immediately after the Manhattan federal court hearing.

U.S. Attorney Damian Williams said the charges were a first because they pertained to NFTs, or non-fungible tokens, that provide digital ownership of art and other content.

Michael J. Driscoll, head of New York's FBI office, said Chastain used his knowledge of confidential information to buy dozens of NFTs in advance of them being featured on OpenSea's homepage. OpenSea is the largest online marketplace for the purchase and sale of NFTs, authorities noted.

Driscoll said the emergence of any new investment tool such as “blockchain supported non-fungible tokens” will lead some to exploit its vulnerabilities for illegal profits.

“NFTs might be new, but this type of criminal scheme is not," Williams said. "Nathaniel Chastain betrayed OpenSea by using its confidential business information to make money for himself. Today’s charges demonstrate the commitment of this Office to stamping out insider trading — whether it occurs on the stock market or the blockchain.”

Chastain, as part of his job, was responsible for selecting NFTs to be featured on OpenSea's homepage, authorities said. They added that price buyers were usually willing to pay more for an NFT once it was featured on OpenSea's homepage, enabling Chastain to sell them at two- to five-times his initial purchase price.

He concealed the fraud by conducting the purchases and sales through anonymous digital currency wallets and anonymous accounts at OpenSea, authorities said.