Chastain 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. US attorney Damian Williams said that the charges demonstrated the commitment of US law enforcement to “stamping out insider trading – whether it occurs on the stock market or the blockchain.”
The SDNY said Chastain had been responsible for selecting NFTs to be featured on OpenSea’s homepage – information that the company kept confidential prior to publication. It said that, after an NFT was featured on OpenSea’s homepage, the price buyers were willing to pay for that NFT – and for other NFTs made by the same creator – typically increased substantially.
Between June and September 2021, US officials allege that Chastain used his access to OpenSea’s confidential business information to secretly purchase dozens of NFTs shortly before they were featured on its homepage. Chastain allegedly then sold the NFTs once their price increased, using anonymous digital currency wallets and anonymous accounts on OpenSea to conceal the fraud.
Rauer said: “NFTs are a great opportunity for blockchain-based businesses, but do come with certain risks that need to be taken in consideration. Notably, transactions involving NFTs require both the seller and the purchaser to maintain e-wallets as NFTs are paid for in cryptocurrency. Thus, we have a twofold potential in terms of volatility – that value of the NFT may rise or drop significantly and the fiat exchange rate of the cryptocurrency may go up or down.”
He added: “NFTs are currently deemed to be a digital stamp of authenticity and are widely believed to be ‘true’, ‘frank’ and ‘candid’. While this creates trust, buying an NFT does not necessarily mean that the seller actually owns the digital content represented by the NFT – or the IP linked to the NFT in its smart contract. Ultimately, the buyer must beware. Be cautious and obtain advice before making large investments in NFTs.”