Nathanial Chastain, former product manager at NFT powerhouse OpenSea, has been sentenced to three months in prison in the first-ever NFT insider trading case by DOJ. A federal jury convicted him of fraud and money laundering in May 2023.
In a press release on Tuesday, August 22, the US Attorney for the Southern District of New York announced that Nathanial Chastain, 31, of New York, was sentenced to three months in prison and ordered to pay $50,000 in fine. In addition to prison terms, he has been sentenced to three months of home confinement, three years of supervised release, and ordered to forfeiture the ill-gotten Ether (ETH) he made in insider trading of NFTs on OpenSea.
According to the Inner City Press, Chastain has been ordered to surrender on November 2, 2023, and defense lawyer Daniel Filor plans to appeal the decision and request bail.
Opensea Insider Trading Case Against Chastain
The United States Department of Justice (DOJ) charged Nathanial Chastain in June 2022 with one count of wire fraud and one count of money laundering after he was arrested on that same day.
As a product manager, Chastain was responsible for selecting the NFTs to be featured on the OpenSea homepage. According to the indictment filed in the court, from June 2021 to September 2021, he “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.”
NFTs to be featured on the OpenSea homepage were supposed to be confidential information. However, the product manager used them for his personal gains by buying NFTs in advance and then selling them at profits of two to five times the initial price after they went on sale on the marketplace. He made over $50,000 in dozens of illegal NFT trades.
He pleaded not guilty to charges as his lawyer argued that OpenSea didn’t treat such information as confidential during the period of these trades. “Nobody told Nate that he couldn’t use or share that information,” told his lawyer to the jury. The prosecution argued that he knew he was doing wrong as he used anonymous wallets and accounts to conduct these trades.
OpenSea management forced Chastain to resign in September 2021, saying he violated employee policies. This happened after an anonymous X thread first reported his corrupt practices. After the arrest and DOJ charges, he filed several motions to drop the charges and exclude the term insider trading arguing that NFTs are not securities.
Nevertheless, as reported, the motions were denied, and the jury found Nathanial Chastain guilty of wire fraud and money laundering. Each charge carried a maximum sentence of 20 years in prison. He seems lucky to receive only three months of punishment in prison.
According to Inner City Press, Chastain received a mild sentence because he was a first-time offender, and there was only a few hundred dollars of profit.
