Crypto gets insider trading charge for the first time ever

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

The world of NFTs that exploded last year amid pandemic-induced cryptomania reached a funny new milestone today: its first charge of misconduct.

On Wednesday, the Department of Justice prosecuted Nathaniel Chastain, a former Harvard poetry student and wrong leaf pranksters, with a single charge of fraud and money laundering to allegedly control the crypto markets by buying 45 NFTs and then reselling them shortly 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 risks 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 whole nature of the pattern is very special 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 proprietor ownership rights – often to an image or original work of art. At the time of Chastain’s alleged profits, cryptocurrencies were on the verge of peaking in sales, driven by the popularity of cartoon-like doodle collections and now include the famous Bored Ape Yacht Club. Some are worth millions. The problem with NFTs was that their value, like many other types of art, was largely due to their speed, with most of them being functionally worthless.

Chestnut was not created by NFT. He was a passionate person who adopted his personality blue-haired pirate Avatar Twitter NFT online. More importantly, though, he was product manager for OpenSea and was especially responsible for overseeing the website of the famous NFT Marketplace. In this work, he chose the NFTs that would be displayed on the website and which would consequently 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 reportedly did, from June to September last year, was create anonymous digital wallets, buy NFTs before coming to the website – at a time when they would be cheaper – and then resell them shortly after with a nice profit. . Certain NFTs described in the indictment will now become his purchase history.

It was all discovered in September last year by a crypto-personality walking past 0xZuwu on Twitter. The NFT investor was able to track sales back to Chastain and put everything online. Soon, Chastain lost his job, and OpenSea confirmed that the secret buying and selling before the marketing campaign on the website had taken place. Chastain never responded to the comments, and his Twitter page became silent.

After the Justice Department filed the indictment, crypto-Twitter was excited by the prospect that they might have to play by the same rules as the rest of the world. The Ministry of Justice claims that its knowledge of what should be traded and when is considered confidential information and that trading in this knowledge is an abuse of market integrity. For years, the industry has been able to change the shape around new fashion as federal regulators continue to define basic definitions of cryptocurrencies and whether digital assets should be regulated as stock or commodity markets. But it 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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