US prosecutors are currently chasing insider trading in the crypto industry.
On Wednesday, a prosecutor in the Southern District of New York charged and arrested Nathaniel Chastain, a former product manager at the online marketplace OpenSea. A 31-year-old woman faces one wire fraud and one money laundering in connection with a scheme for insider trading of non-fungible tokens (NFTs). OpenSea’s home page for his personal financial gain. “
Each count can be imprisoned for up to 20 years. The Ministry of Justice wrote in a press release..
DOJ officials say it is the first time to pursue the cost of insider trading related to digital assets.
Chastain’s alleged plan was relatively simple.
According to the indictment, Chastain was tasked with selecting an NFT to be posted on the OpenSea home page. OpenSea kept the list on the main page secret until it published their homepage selections, as they often lead to higher prices for both NFTs created by the same author as the featured NFTs.
From about June to September 2021. According to the indictment, Chastain will secretly purchase an NFT just before OpenSea publishes its work on the front page of its website. When those NFTs reached the main page, he was alleged to have sold them “with a profit of 2-5 times the original purchase price.”
According to the DOJ, to hide his footsteps, he traded on OpenSea using an anonymous digital currency wallet and an anonymous account. This claims to have happened dozens of times.
“NFTs may be new, but this type of crime scheme isn’t,” said US lawyer Damian Williams. “Today’s rates show this office’s commitment to eliminate insider trading, whether it occurs on the stock market or on the blockchain.”
The FBI’s assistant director, Michael J. Driscol, says the agency will continue to actively track actors who choose to manipulate the market in this way.
Until September 2021When Chastain’s suspicious practices were first revealed, startups were relatively slow regarding restrictions around employees to use privileged information to invest in NFTs.
Since then, the company has Implemented two new employee policiesProhibiting buying and selling from collections or creators while OpenSea team members are being introduced or promoted by the company, and “buying or selling NFTs using sensitive information, whether or not it is available on the OpenSea platform.” Includes prohibiting staff from doing so. ”
The entire episode reveals regulatory gaps that exist in the wider crypto ecosystem. In particular, NFTs are in the legal gray zone. They are not officially considered securities and are not much of a legal precedent for digital assets as a whole. Therefore, until today’s arrest, it was not clear whether prosecutors would track NFT insider trading.
Boaz Sobrado, a London-based fintech data analyst, said the OpenSea scandal reveals two things. First, blockchain transparency is a powerful tool for monitoring fraudulent behavior, given that all transactions are public and permanently recorded. However, until today’s arrest, regulatory agencies did not make much use of that information.
“There is a lot of debate about regulation right now, but what many of these malicious people are doing right now is clearly against the law. Regulators have made this kind of fraudulent and misleading statement. There is no need to extend authority to counter it, “Soblad said.
Sobrado pointed out that the money in this space is so loose that people participating in fraudulent activities are neglecting the simplest steps to hide their footprints.
“This also shows a kind of frustration madness that is happening in the field right now,” he said. “The situation is good and everyone feels rich, but not much talk about it. But as soon as the market declines, many of these people are exposed and many are angry. “
