OpenSea insider trading case involving digital assets leads to fraud, money laundering convictions

Getting your Trinity Audio player ready...

In what federal prosecutors described as the world’s first insider trading case involving so-called ‘digital assets,’ former OpenSea product manager Nathaniel Chastain has been convicted of fraud and money laundering.

In 2022, Chastain was charged with money laundering and wire fraud in relation to using insider knowledge of which non-fungible tokens (NFTs) would be listed on OpenSea’s homepage to buy them in advance and sell them for profits.

As the case progressed, it was revealed that Chastain had used various anonymous accounts to buy NFTs he knew would be listed on the OpenSea homepage in advance. He made $50,000 from the scheme.

The defense argued that OpenSea did not make this information secret and that Chastain should “not be held to a standard that didn’t exist.” However, the prosecution used the fact that he had attempted to hide what he was doing by using anonymous accounts as evidence that he had knowingly made illegal trades.

Existing financial laws and regulations apply to digital currencies and assets

At CoinGeek, we’ve been making this point daily for years, and we’ll keep making it until it sinks in; digital currencies, tokens, and assets of all kinds are subject to existing financial rules and regulations everywhere. It’s not necessary to pen new laws or regulations to govern them because the existing guidelines already apply.

While Bitcoin (in its original form) was meticulously designed by Dr. Craig Wright to comply with the financial laws he studied when he took his Master of Laws (LLM), most other tokens and digital currencies violate one or more existing financial rules and can be considered unregistered securities. For example, see why Ethereum is a security here.

Yet, securities laws aren’t the only kind that applies to the industry, as Nathaniel Chastain has learned the hard way. Rules about money laundering, fraud, insider trading, and more apply, and they always have applied, which must be causing some big players in the industry to lose sleep.

In the months and years to come, expect many familiar names to face similar charges to those Chastain has been convicted of as regulators close in on exchanges and authorities across the globe bring the fraudsters who have run amok in the industry to justice. Soon, the world will know what we have been reporting for years; ‘crypto’ is little more than an organized crime cartel designed to defraud unwitting speculators and extract as many dollars as possible while pretending to care about an ill-defined financial revolution.

For those thinking of using the alleged cover of digital currencies to commit crimes, let Chastain’s conviction serve as a warning; Bitcoin is not anonymous, and neither are any other blockchain-based digital currencies. For those thinking they can make a quick buck trading NFTs and other tokens, allow this story to inform you that while you may make some money, the game is rigged, and insiders are playing against you.

Hopefully, schemes like this will become a thing of the past, and attention can shift to the real utility of blockchain technology and the problems it can solve. One down, many more to go!

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple,
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.