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  • J Huang and S Pettigrove

Sunk: Ex-OpenSea employee convicted in first NFT insider trading case

A former Head of Product at OpenSea, a well known non-fungible token (NFT) marketplace, was found guilty on Wednesday in what US prosecutors described as the "first ever digital asset insider trading" case. He is now facing a maximum sentence of up to 40 years in prison.

A jury in New York convicted 32-year-old Nate Chastain of wire fraud and money laundering for using nonpublic information from his employer to trade on NFTs in 2021. Chastain purchased the NFTs ahead of OpenSea featuring them on its home page, knowing the NFTs would sharply increase in price.

The Manhattan US attorney's office claimed that Chastain had bought 45 NFTs in around 5 months and sold them for up to 5 times the price he paid, pocketing tens of thousands of dollars in profit. Chastain's trading activities were first revealed by on-chain sleuths.

“He cheated, he stole, and he lied...He saw a way to make some extra money, to capture some upside”.


“He had information that would give him a leg up on every other NFT trader".

While US prosecutors used the words "insider trading" to describe Chastain's alleged crimes, they did not bring traditional insider-trading charges, which involve securities or commodities violations. Instead, they charged him with wire fraud and money laundering. Because of this, whether the NFTs in question are securities or commodities was not necessary to determine in this case.

Prior to the trial, Chastain’s lawyers had fought to bar any mention of “insider trading” from the case, arguing that the prosecutors hadn't formally identified NFTs as either a security or a commodity, and were taking liberties with the term. Instead of insider trading, the lawyers said Chastain's actions were akin to an employee of an art gallery promoting their own painting and fetching a higher sum for it as a result. These arguments were rejected by the court.

The court also agreed that confidential information about which NFTs will be featured by OpenSea can be considered property, which was a key element to the prosecutors' wire fraud case. Prosecutors said that OpenSea, which was founded in 2017, treated the information as confidential and that Chastain signed a confidentiality agreement when he started working for the company, which included a “protection of information” provision.

However, lawyers for Chastain argued that the information wasn’t treated as confidential or property by OpenSea, arguing the relevant company rules weren’t clear. They also said OpenSea lacked a formal insider trading policy:

Not only were there no OpenSea policies, trainings, or compliance programs to inform employees of any restriction on trading featured NFTs, the government would have the jury believe that a generic confidentiality agreement, signed by newly hired employees, covered the conduct.

A policy that would have expressly prohibited the defendant from buying the NFTs in question was only put in place by OpenSea after Chastain’s transactions came to public knowledge.

Following last year's high profile Coinbase insider trading case in which one defendant has pled guilty, the OpenSea case establishes a significant precedent by utilizing traditional fraud charges to prosecute trading in digital assets based on inside information, sidestepping the complex securities law issues required to bring insider dealing charges. The highly contentious issue of whether fungible digital tokens or NFTs are securities or commodities will remain a heated ground for future debate.

The OpenSea and Coinbase cases are also an important reminder for Web3 companies to implement well considered token dealing policies to curb trading on inside information by employees and contractors and to prevent the reputational fallout caused by insider dealing in cryptoassets including NFTs. In considering whether to implement a token dealing policy, it is important to instruct competent lawyers who are deeply familiar with both digital assets, corporate and financial services laws and the unique issues which arise involving digital assets.


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