The former Head of Product at OpenSea, Nate Chastain, has been charged with wire fraud and money laundering after apparently inside-trading NFTs on the platform. Both counts carry a maximum sentence of 20 years in prison to be determined by a judge.
Many NFT natives might remember when 0xZuwu.eth, an NFT Twitter account, exposed Nate back in September 2021 for insider trading. Their tweet has over 12,000 likes at the time of writing, which is considerable in the world of Crypto Twitter.
So what exactly did he do?
Insider trading NFTs
Much like a kid might close their eyes so no one will see them take that extra piece of candy, it appears that Nate performed his actions in connection with his public Ethereum wallet.
Due to his position, Nate chose and knew which collections would be featured on OpenSea’s front page. He allegedly bought several NFTs from these collections, waited for them to be featured, then sold into the pump that followed.
While others might have chosen to use Tornado Cash to send off their freshly-earned ETH to a safe place, Nate chose to send them to his public wallet, proving on-chain that he committed what the charges describe as “insider trading”.
On the same day of the exposure, OpenSea decided to terminate Nate’s employment stating that “OpenSea team members are prohibited from using confidential information to purchase or sell any NFTs.” Since his actions were exposed in a tweet, Nate has been MIA from social media.
Precedent being set?
As written in the official press release:
“U.S. Attorney Damian Williams said: ‘NFTs might be new, but this type of criminal scheme is not. As alleged, 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.’”
It seems this case is setting the precedent for the same rules and regulations of the stock market to be brought over to the blockchain. However, many are speculating whether Nate’s actions were in conflict with the law; NFTs technically are not securities. As an article from Forbes states:
“It’s notable that the indictment returned yesterday and unsealed today calls the incident ‘insider trading,’ because NFTs don’t seem to be covered by the Securities Act of 1934, which bars insider trading in stock and other financial securities.”
While the indictment does not refer to NFTs as securities directly, prosecutors might have been waiting for an official case that would push for NFTs to be considered securities, and this might be it. Many laws and regulations were set to prevent similar past cases from occurring.
One thing is for sure: many serial NFT ruggers such as Zagabond are running for the border. Since Nate was charged with insider trading for negligible amounts, what will happen to those who scammed millions out of the pockets of others?
