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Jun 1, 2022 - Economy

Ex-OpenSea employee arrested for insider trading

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Illustration: Annelise Capossela/Axios

The FBI arrested a former OpenSea employee on Wednesday for insider trading of NFTs, according to a Justice Department announcement.

Why it matters: The case signals that laws around profiting on non-public information apply just as much on the blockchain as they do in more traditional markets.

The alleged scheme: Nate Chastain was an employee at the world's leading NFT marketplace, OpenSea, and the company's first hire on its product team, according to The Defiant.

  • As part of his job, he selected NFTs to get featured on OpenSea's front page.
  • According to the indictment, featured NFTs saw dramatic price increases, as did other NFTs in the same collection or by the same creator.
  • The indictment claims that Chastain would buy up NFTs in advance of their getting featured on OpenSea's front page and resell them "at profits of two to five times his initial purchase price," according to the Department of Justice.
  • He's further accused of using fresh Ethereum wallets and hopping funds around to conceal the purchases were his.

The indictment specifically mentions Chastain flipped works by Arya Mularama, Lurk Loves You and Dailydust. Chastain is accused of purchasing 45 NFTs on 11 separate occasions, from June to September 2021.

Flashback: In September, OpenSea put out a statement after discovering that a then-unnamed employee had misused confidential information.

  • "Yesterday we learned that one of our employees purchased items that they knew were set to display on our front page before they appeared there publicly," OpenSea founder Devin Finzer wrote at the time. "This is incredibly disappointing."

What they're saying: "Trust and integrity are core to everything we do," an OpenSea spokesperson tells Axios. "When we learned of Nate’s behavior, we initiated an investigation and ultimately asked him to leave the company. His behavior was in violation of our employee policies and in direct conflict with our core values and principles."

Editor's note: This article was updated with today's comment from OpenSea.

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