The trial against ex-OpenSea product manager Nathaniel Chastain is set to begin later this week, nearly a year since he was arrested in New York City for wire fraud. Chastain’s arrest came on the tail-end of an FBI investigation into his non-fungible tokens (NFT) dealings, which alleged he had secretly bought NFTs and resold them for two to five times their original value.
Prosecutors claim Chastain used the business information at OpenSea to discern which tokens would have the highest value and would be featured on the company’s home page and used the information to turn a profit. The trial is the first criminal insider trading case involving NFTs, according to Reuters, but U.S. Attorney Damian Williams said in a June 1 filing, “NFTs might be new, but this type of criminal scheme is not.”
OpenSea is the largest online marketplace for selling and purchasing NFTs, and Chastain’s lawyers argued in a pretrial conference on Thursday that Chastain’s actions did not fall under insider trading as the information obtained presented no value to OpenSea. “We are not talking about securities trading,” Chastain’s lawyer David Miller said, adding, “There is a substantial danger of undue prejudice and confusion of the jury.”
In contrast to Miller’s claims that Chastain had committed no crime, the indictment filed in May of last year says OpenSea required its employees to maintain the confidentiality of any and all business information and had “an obligation to refrain from using such information, except for the benefit of OpenSea or to the extent necessary to perform work for OpenSea.” The indictment says Chastain had signed a written agreement with OpenSea when he started working for the company and had acknowledged those obligations in the agreement.
Chastain allegedly sold the NFTs from June 2021 until at least September 2021 and according to the indictment, in one case, Chastain had purchased four of “The Brawl 2” NFT tokens only minutes before it went live on OpenSea’s homepage, selling them for double the amount he purchased them for within hours.
He reportedly used multiple anonymous accounts and digital wallets to fly under the radar during purchases and sales of the NFTs. FBI Assistant Director-in-Charge Michael J. Driscoll said in the June filing, “In this case, as alleged, Chastain launched an age-old scheme to commit insider trading by using his knowledge of confidential information to purchase dozens of NFTs in advance of them being featured on OpenSea’s homepage.” He added that “the FBI will continue to aggressively pursue actors who choose to manipulate the market in this way.”
Chastain is charged with one count of wire fraud and one count of money laundering. His trial is expected to last one to two weeks and, if convicted, he faces a maximum of 20 years in prison.
OpenSea did not immediately respond to Gizmodo’s request for comment.