First-ever insider trading case hits crypto market

Synopsis

OpenSea keeps confidential the identity of featured NFTs until they appeared on its homepage. After NFT features on OpenSea’s homepage, the price buyers are willing to pay for that NFT, and for other NFTs made by the same NFT creator, typically increases substantially.

In one instance, Chastain allegedly more than quadrupled his money by purchasing the NFT “Spectrum of a Ramenfication Theory” on Sept. 14, 2021, and selling it early the next morning.New Delhi: A former product manager of Ozone Network (OpenSea), named Nathaneil Chastain has been charged with insider trading in crypto assets. This makes it the first-ever case of insider trading in the digital asset market.

New York-based Chastain is charged with wire fraud and money laundering in connection with a scheme to commit insider trading in non-fungible tokens (NFTs) by using confidential information for his personal financial gain.

Chastain, 31, of Manhattan, was accused of secretly buying 45 NFTs on 11 separate occasions based on confidential information that the tokens, or others by the same creator, would soon be featured on OpenSea’s home page.
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Prosecutors said Chastain chose which NFTs to feature, and sold his NFTs shortly after they were featured, typically for two to five times what he paid.

OpenSea keeps confidential the identity of featured NFTs until they appeared on its homepage. After NFT features on OpenSea’s homepage, the price buyers are willing to pay for that NFT, and for other NFTs made by the same NFT creator, typically increases substantially.

In one instance, Chastain allegedly more than quadrupled his money by purchasing the NFT “Spectrum of a Ramenfication Theory” on Sept. 14, 2021, and selling it early the next morning.

“NFTs might be new, but this type of criminal scheme is not,” U.S. Attorney Damian Williams in Manhattan said in a statement. “Today’s charges demonstrate the commitment of this office to stamping out insider trading – whether it occurs on the stock market or the blockchain.”

OpenSea is among the largest online marketplace for the purchase and sale of NFTs.

Commenting on this one of a kind case, Saravanan Jaichandaran, Chief Data Scientist, bitsCrunch said there is a significant amount of insider trading in the business, particularly in NFTs and DeFi.

“Consumers need to know that they are not being taken advantage of by insiders exploiting confidential knowledge to their detriment if they are to have faith in the NFT market,” he added.

Wash trading is rather common on centralized cryptocurrency exchanges and in the NFT market. Wash trades can be made when traders and brokers work together.

Traders who engage in a wash trade buy and sell assets to create a false market signal. Investors who act as both buyers and sellers can make wash deals.

(With inputs from agencies)
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Updated: 06/02/2022 — 18:00