Insider Trading Charges for NFTs Signals Government Crackdown
Neither this post nor any other on cryptofal.com should be taken as financial advice. It is not.
Just last week, a former OpenSea employee, Nathaniel Chastain, was charged “with wire fraud and money laundering in connection with a scheme to commit insider trading in Non-Fungible Tokens or NFTs.” While employed with OpenSea, Chastain was privy to confidential information of which NFTs would be featured on the trading platform’s home page.
Empirically speaking, being featured so prominently would increase the value of the NFTs chosen, so Chastain used the information to purchase dozens of the NFTs and subsequently resold them at a profit far exceeding his initial cost. As a way to conceal his transaction and identity, he used a variety of anonymous digit wallets. According to the press release from the Department of Justice (DOJ), this case comes as the first charge of insider trading in the crypto space.
It appears to be the objective of the DOJ to put the crypto community on notice that insider trading and market manipulation can and will be prosecuted under current laws and regulations. Simultaneously, this case presents the DOJ an opportunity to extend the reach of their jurisdiction into digital assets and flex the efficiency of their newly formed National Cryptocurrency Enforcement Team (NCET), who, in partnership with the FBI, spearheaded the investigation. The pursuit of the case will be further handled by the DOJ’s Office’s Securities and Commodities Fraud Task Force alongside the prosecuting attorneys in the Southern District of New York.
Indeed, this past week has been very active for government agencies pursuing other alleged finance law violations within the crypto ecosystem. The CFTC is suing Gemini Trust Co. for misleading statements in 2017 regarding a BTC futures contract, while the SEC announced launching an investigation into Binance for their BNB Token sale. What all these cases signal for the entire crypto community is that government agencies will not be idle and wait on Congress to pass legislation before pursuing charges as they apply in the preexisting legal framework.
Regardless of how NFTs or other digital assets are defined, it’s clear that it was the actions of Chastain, not the assets being traded, that garnered the charges he now faces. The crypto ecosystem has existed in a gray area of the U.S. legal framework, but that is quickly coming to a close.