Ex-OpenSea manager sentenced to 3 months in prison for NFT insider trading

Aug 22 (Reuters) — A U.S. judge sen­tenced a for­mer prod­uct man­ag­er at OpenSea, the world’s largest mar­ket­place for non-fun­gi­ble tokens (NFTs), to three months in prison on Tues­day for buy­ing NFTs he knew would soon be fea­tured on the site’s home page.

Nathaniel Chas­tain, 33, was con­vict­ed of fraud and mon­ey laun­der­ing in fed­er­al court in Man­hat­tan in May for what pros­e­cu­tors called the first insid­er trad­ing case involv­ing dig­i­tal assets.

U.S. Dis­trict Judge Jesse Fur­man called the sen­tence a “dif­fi­cult” one to decide. The judge said he had doubts about whether the case alleg­ing illic­it trades worth about $50,000 would have been brought had the con­duct not occurred in the “slight­ly sexy” new are­na of cryptocurrency.

Fur­man sen­tenced Chas­tain to three months of home con­fine­ment and 200 hours of com­mu­ni­ty ser­vice fol­low­ing his impris­on­ment. The judge ruled Chas­tain must pay a $50,000 fine and for­feit 15.98 ether, cur­rent­ly worth about $26,000 accord­ing to Eikon data.

Chas­tain will remain free on bail until Nov. 2. His attor­ney said he will file a motion ask­ing for bail to be extend­ed while Chas­tain appeals.

Dur­ing the hear­ing, Chas­tain apol­o­gized to OpenSea and his family.

“I let down the com­pa­ny I was serv­ing and lost sight of the per­son I aspired to be,” he said.

U.S. Attor­ney Dami­an Williams said in a state­ment that the sen­tence “should serve as a warn­ing to oth­er cor­po­rate insid­ers that insid­er trad­ing — in any mar­ket­place — will not be tolerated.”

Pros­e­cu­tors had called for between 21 and 27 months in prison for Chas­tain, com­par­ing the case to one against Ishan Wahi, a for­mer Coin­base Glob­al Inc (COIN.O) prod­uct man­ag­er sen­tenced to two years in prison for pur­chas­ing cer­tain cryp­tocur­ren­cies before they were list­ed on the exchange.

Chas­tain’s attor­neys had asked for no prison time, say­ing he had already lost his rep­u­ta­tion, job and equi­ty in OpenSea worth mil­lions of dollars.

Non-fun­gi­ble tokens are unique dig­i­tal assets, reflect­ing own­er­ship of files such as art­work, oth­er images, videos and text, and record­ed on a blockchain.

Pros­e­cu­tors unsealed charges against Chas­tain in June 2022, after a boom in NFT sales saw the mar­ket grow to about $40 bil­lion in 2021.

They accused Chas­tain of steal­ing OpenSea’s con­fi­den­tial infor­ma­tion and using it to make more than $50,000 in ille­gal prof­it by pur­chas­ing at least 45 NFTs and then sell­ing them once they had gar­nered atten­tion on the site.

Chas­tain’s lawyers argued at tri­al that OpenSea did not treat knowl­edge of what NFTs would be fea­tured on its home­page as con­fi­den­tial infor­ma­tion when Chas­tain worked at the com­pa­ny, a require­ment for pros­e­cu­tors to prove wire fraud.

The case is U.S. v. Chas­tain, No. 22–00305, U.S. Dis­trict Court, South­ern Dis­trict of New York.

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