Federal clampdown on crypto looming as former OpenSea exec faces decades in prison

In the first ever crypto insider trading case, Nate Chastain was charged with wire fraud and money laundering.

Nate Chastain, former head of product at OpenSea, was arrested in New York this week following an insider trading investigation led by the FBI. A grand jury indicted Chastain on one count of wire fraud and one count of money laundering. Each carries a maximum prison sentence of 20 years.

Chastain was accused of buying up “approximately” 45 NFTs before they got featured on OpenSea’s homepage. According to the indictment, he was personally involved in the selection process, making the case a classic example of insider trading. Once the collections picked up, Chastain would sell them for two- to five-times the price he had paid, operating anonymous Ethereum wallets to cover up his tracks.

“NFTs might be new, but this type of criminal scheme is not,” US Attorney for the Southern District of New York, Damian Williams, said of the indictment.

The rise and fall of Nate Chastain

To NFT veterans, the indictment is nothing new. In September 2021, a pseudonymous Twitter sleuth found Chastain’s secret wallets, called OpenSea out on Twitter, and the platform’s leadership was quick to force Chastain to resign.

At the time, community ostracism was believed to be the only punishment Chastain would face. A former comedy writer for Mad magazine and The Onion, in his glory days in the NFT business Chastain proved a prolific Twitter user and a self-fashioned OpenSea spokesman. As recently as last month, he was found to be working for another NFT startup, Oval, now defunct.

A prelude to a wider clampdown?

Now, his case could prompt the SEC to double down on crypto. The first crypto-related insider trading indictment ever, it adds a powerful argument to the SEC’s position that digital assets such as NFTs should be subject to the same laws that apply to traditional securities.

The SEC’s newly formed Crypto Assets and Cyber Unit (CACU), which admitted 20 new investigators earlier this month, as well as the FBI’s Virtual Asset Exploitation Unit (VAXU), are poised to double down on the sector. In retrospect, Chastain’s case could become historic.

In Williams’s own words, the charges against Chastain “demonstrate the commitment” of the Department of Justice to “stamping out insider trading – whether it occurs on the stock market or the blockchain.” FBI Assistant Director-in-Charge Michael J. Driscoll added that “the FBI will continue to aggressively pursue actors who choose to manipulate the market” like Chastain did.

The former OpenSea executive was set to be presented in the District Court for the Southern District of New York yesterday. His case will be handled by the DOJ’s Securities and Commodities Fraud Task Force.