For trading activities, including currencies, digital currencies, and other tokens, it is always a crime to use insider information for personal gains. A recent case was enlightened that an employee of OpenSea was involved in an activity of using insider information for higher profits. In a blog spot by The Block revealed that Chastain used inside information from OpenSeas, one of the biggest marketplaces for NFTs, which is now in big controversy.
OpenSeas has admitted about kate being involved in malpractice and using inside information regarding the front page NFT. He used his Ethereum wallet to buy the front Page NFT, which he knew would be hype after its listing. A Twitter account named Zuwu gave this issue the light of the day, and since OpenSeas has accepted the guilt, the issue is not official and open in the market.
OpenSea agreed that this incident is “incredibly disappointing,” and the investigation is going on. “We want to be clear that this behavior does not represent our values as a team,” the company stated. “We are taking this very seriously and are conducting an immediate and thorough review of this incident so that we have a full understanding of the facts and additional steps we need to take,” they added.
Through the incident, there is some murmuring going on about the trust issue among the company’s customers. A more surprising element is, that there is no law for or to regulate the sale or trade of NFTs yet in USA or Canada, said a business law firm McMillan through an analysis. They stated that now the authorities might think about having one in the books after this incident came to the light of the day. This was till NY’s prosecutor took charge of the case in June 2022. As per the prosecutor, the 31-year-old Nathaniel Chastain is going to face one count of wire fraud and one count of Money Laundering “using confidential information about what NFTs were going to be featured on OpenSea’s homepage for his personal financial gain.” for which maximum sentences are for 20 years of prison for each.
Chastain was charged as the sequence of events is about using insider information. It is not about fraud transactions or anything but is about using the information to make two to five-fold profit. According to the indictment, Chastian was given tasked to select NFTs to feature on the home page of OpenSea, where OpenSea would keep it confidential until it went live on the website.
As per the indictment, roughly from June to September 2021, Chastian would buy an NFT right before the OpenSea made it live on the website’s front page using a digital currency wallet, and once it hits the main page, Chastain would sell it with high profits. As the transaction was made using cryptocurrency, it was a great idea to cover his tracks, which has happened dozens of times.
US attorney Damian Williams View
US attorney Damian Williams said, “NFTs might be new, but this type of criminal scheme is not. Today’s charges demonstrate the commitment of this Office to stamping out insider trading — whether it occurs on the stock market or the blockchain.” The FBI’s Assistant Director-in-Charge Michael J. Driscoll says the bureau will continue to aggressively pursue actors who choose to manipulate the market in this way.
As preventive measures, they already had implemented two policies for the employees for the selling and buying of NFTs so that such incident doesn’t happen in the future and no further dent is caused to the image of the company. As per policy, the employees of OpenSea aren’t allowed to trade from collections and creators while they are being promoted. Secondly, they are prohibited from using or sharing confidential information to trade NFTs on any platform, including OpenSea.
One of the London-based fintech analysts, Boaz Sobardo, found this incident to showcase the positive side of the transparency of blockchain and said “There’s a lot of chat about regulation right now, but what a lot of these bad actors are doing is clearly against the law right now. Regulators don’t need their powers expanded to be able to combat this sort of fraud and misleading statements,”