The Nate Chastian case could provide a defining moment
A former Product Manager at Leader Ethereum NFT Market Open sea has been arrested and charged with insider trading. Nate Chastian, 31, faces one count of wire fraud and one count of money laundering and could now face up to 40 years in prison as regulators target the crypto industry.
Nate Christian is accused of carrying out a scheme whereby he abused his position as Product Manager at OpenSea to obtain advance information on which NFT collections would be displayed on the home page. While being featured isn’t a guaranteed ticket to stardom, it will generally boost a collection’s trading volume, if only temporarily, as more eyes start to see it.
According to the available information, Nate Chastian’s job was to choose the NFTs that landed on the OpenSea home page. From roughly June to September 2021, coincidentally when NFT trading volumes were breaking records month after month, Nate is accused of buying said NFTs prior to their listing on the home page and then selling them fairly quickly for profits of up to five times the purchase price.
Notably, until September 2021, when Chastian’s alleged insider trading first came to light, the startup was relatively relaxed regarding restrictions on employees using insider information to invest in NFTs. Since then, OpenSea has implemented two other policies for employees, including prohibiting OpenSea team members from buying or selling collections or creators while the company is presenting or promoting them, as well as prohibiting staff from using confidential information to purchase or sell any NFT, whether available on the OpenSea platform or not.
Unfortunately for Mr. Chastian, the current climate around this type of activity points to such bad actors and incidents being used to set an example for the industry to follow, as we expect to see many more cases emerge this year.
Until today, it was unclear whether prosecutors could go after bad guys for insider trading with NFTs. This case shines a light on how bad things are in the crypto space in general, as NFTs remain a massive gray area and are not considered securities. Additionally, there is very little legal clarity for digital assets despite the fact that the blockchain provides what is arguably the most transparent and useful record of transactions. Until now, however, regulators have paid little attention.
When the bulls were out and everyone was smiling, there was little talk of regulation or change, now the dust has settled on what has arguably been one of the most traumatic 6 months in crypto history and the narrative is changing again. The issues surrounding stablecoins and UST rocked the industry heavily, coupled with confirmation of a bear market coupled with record amounts taken in hacks and exploits, have created a narrative focused on security, trading regulations and the exposure of bad actors and scams.
Just this week, a former employee of a very outspoken anti-cryptocurrency Senator took the PoolTogether dapp to court, which allows users to stake cryptocurrency for rewards with the added bonus of a lottery ticket. In an ironic move, they launched a collection of NFTs to help them fund and fight a legal battle. Another class action lawsuit has been filed against Uniswap developers and venture capitalists because the DeFi dapp allows users to list and trade tokens. Furthermore, it claims that its creators are responsible for “rampant fraud on the exchange” and must register as a stockbroker with the Financial Industry Regulatory Authority, or FINRA.
Those of us who came for the money and stayed for the technology are now possibly more than happy with the evolution of regulations and with the entire industry getting a face lift. Also, if this industry is going to be disruptive at the rate it has been so far, we need more legal clarity on what is and is not acceptable.
The foregoing does not constitute investment advice. The information provided here is purely for informational purposes only. Please exercise due diligence and investigate. The writer holds positions in various cryptocurrencies including BTC, ETH, and RADAR.