Former OpenSea manager convicted in first NFT insider trading case

A former OpenSea employee has been found guilty in the first ever insider trading case in the NFT ecosystem. Nate Chastain, a former manager at the marketplace, used anonymous Ethereum wallets to purchase works of art from artists who were due to be featured on the OpenSea marketplace. This led to complaints from users who felt that Chastain was using privileged information to purchase works of art that he knew were due to increase in value. Chastain subsequently resigned from his position.

In June 2022, Chastain was arrested by the FBI on insider trading charges, and a jury has now found him guilty. Chastain’s lawyers argued that the crime of insider trading was not applicable in this case, as NFTs are not yet considered securities. However, a judge clarified that insider trading is not limited to securities but also applies to any misconduct in which someone with non-public information about an asset improperly uses that information to trade the asset or helps someone else trade it.

The case hinged on whether the jury believed that Chastain’s knowledge of upcoming featured artists amounted to confidential business information. This was initially unclear because the company was a young start-up dealing in novel assets. However, Chastain’s use of anonymous wallets to cover his tracks was seen as evidence that he was aware he was using confidential knowledge.

Chastain’s sentencing for wire fraud and money laundering will be decided by August 22. OpenSea has not yet commented on the case. This case highlights the importance of companies implementing clear policies prohibiting employees from trading in featured artists or from using confidential information in their trading, even outside of the company’s marketplace. It also underscores the need for employees to treat certain information as confidential, regardless of whether it is explicitly outlined in written policies.

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