US authorities have charged a man for using confidential information to purchase dozens of non-fungible tokens (NFTs) in advance of them being released.
It is believed to be the first prosecution of alleged insider trading involving the digital assets.
“NFTs might be new, but this type of criminal scheme is not,” Damian Williams, US attorney for the southern district of New York, said.
Nathaniel Chastain, a former employee of OpenSea, the world’s biggest NFT marketplace, was charged with wire fraud and money laundering.
Williams alleged that Chastain, as part of his employment, was responsible for selecting the tokens to be featured on OpenSea’s homepage. OpenSea kept confidential the identity of featured tokens until they appeared on its homepage.
“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,” Federal Bureau of Investigation assistant director-in-charge Michael J Driscoll, said in a statement about the indictment.
NFTs Allegedly Sold At Profit
After those NFTs that were featured on OpenSea, Chastain sold them at profits of two- to five-times his initial purchase price, the US authorities said.
To conceal the fraud, he conducted these purchases and sales using anonymous digital currency wallets and anonymous accounts on OpenSea, they added.
“With the emergence of any new investment tool, such as blockchain supported non-fungible tokens, there are those who will exploit vulnerabilities for their own gain,” Driscoll said.
“The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way.”
The 31-year-old Chastain, of New York, is charged with one count of wire fraud and one count of money laundering, each of which carries a maximum sentence of 20 years in prison.
The charges come amid wobbles in the global NFT market. Sales on OpenSea reached nearly $5 billion in January, a giant leap from the $8 million a year before, but declined to around $2.5 billion in March.
Asia has been seen as a possible global hub for NFT sales.
- George Russell