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Cryptogambling / Former OpenSea product manager sentenced for insider trading

Former OpenSea product manager sentenced for insider trading

Publish Date: 23/08/2023
Video: OpenSea | The NFT marketplace with everything for everyone

OpenSea | The NFT marketplace with everything for everyone

A federal judge has sentenced former OpenSea product manager Nathaniel Chastain to three months in prison for committing the insider trading of digital assets.

According to a press release by the U.S. Attorney’s Office for the Southern District of New York on August 22, besides the three-month detention, Chastain had been sentenced to three months of home confinement and three years of supervised release. In addition, he also must pay a $50,00 fine and forfeit 15.98 Ether, which currently values at $26,000, he gained from trades.

Chastain is scheduled to surrender to authorities on November 2, 2023. His lawyers plan to appeal the decision and request bail.

“I am here today because two years ago I let down the community I was serving and lost sight of the person I aspired to be,” said Chastain at the hearing. “I’m sorry for putting my colleagues and friends at OpenSea through this ordeal.”

Federal prosecutors indicted the former employee of the NFT marketplace in June 2022. He was convicted of wire fraud and money laundering in federal court in Manhattan last May, less than two weeks after his trial began in April 2023.

Chastain departed from OpenSea back in 2021 after the firm requested his resignation. At the time, he was found to be “violating” an obligation to OpenSea’s community.

During his time in OpenSea, Chastain selected which tokens would be featured on the marketplace’s home page. The selected tokens are usually boosted in price.

According to prosecutors, he bought dozens of NFTs before putting them up. Then, he sold them immediately for five times the amount he paid. He made more than $57,000 between June 2021 and September 2021 with the scheme.

Reportedly, he used multiple wallets to route his funds and cover his tracks – although the scheme was quickly unraveled.

Before his sentencing, several crypto investors on social media X linked Chastain to so-called “burner” wallets. Ether from the NFT sales was routed back to his main wallet, which contained a CryptoPunk NFT that he used as his profile picture on X.

Federal prosecutors sought a 21 to 27 months sentence for Chastain, citing a similar insider trading case involving Coinbase manager Ishan Wahi who was sentenced earlier this year. However, the judge gave Chastain a lenient sentence, citing his lack of criminal history and the smaller amount of money he made from his crimes.

Insider trading ‘will not be tolerated’

Analysts note that the Chastain case can be a learning curve for prosecutors for a future crackdown on digital assets fraud. They say this ruling is essential as the regulations for the sector are still being developed.

“Today’s sentence should serve as a warning to other corporate insiders that insider trading – in any marketplace – will not be tolerated.”

Damian Williams, U.S. Attorney for the Southern District of New York.

Insider trading is the practice of trading securities based on nonpublic information. It gives the trader an unfair advantage over other investors and can harm the market as a whole. Like in the traditional market, it is illegal in most countries and carries severe penalties, such as imprisonment and hefty fines.

Traditional insider trading cases typically involve securities fraud, which involves buying or selling securities based on nonpublic information. In Chastain’s case, prosecutors accused him of misappropriating confidential business information from OpenSea and using it to trade NFTs for profit.

Analysts say the recent insider trading investigation into crypto exchanges demonstrates that regulatory bodies are committed to preventing financial wrongdoing in the nascent market.

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