Nate Chastain, a former Head of Product for OpenSea, was sentenced to three months of home confinement this past Tuesday after being convicted of insider trading non-fungible tokens. He will also be required to complete 200 hours of community service following his release, pay a $50,000 fine, and forfeit the gains he made from illegally trading.
Chastain was initially exposed in 2021 for buying NFTs before they were to be listed on OpenSea’s homepage, then dumping them for a profit. Overall, he made around $50,000 in ETH, a small amount compared to the money being tossed around at the time, which factored into the judge’s decision for a light sentence. Prosecutors had initially sought a two-year imprisonment for Chastain, built on the precedence of other cases.
In a press release, U.S. Attorney Damian Williams said Chastain faced justice for violating the trust of his employer, and that his sentencing should serve as a warning to all corporate insiders to not use their knowledge for insider trading in any market. The FBI praised Williams’ work in the case.
At the sentencing, Chastain apologized to OpenSea and his family for his actions, saying he had lost sight of the person he had aspired to be. He will remain free on bail until November 2nd, with the hope that his bail will be extended as Chastain appeals. He was convicted of insider trading and money laundering on May 3rd of this year.
Although insider trading is not unusual, this may very well be the first such case in the NFT space that has ended up with a prison sentence. Not helping Chastain’s defense was OpenSea itself, which acknowledged the former employee’s acts while terminating him from his position.
NFT Space Vies for Legitimacy Amid Court Cases
If you’re an NFT denizen, you likely know that the space operates in a certain gray area — especially when it comes to laws. From imitation collections to trademark infringement, it seems collection founders, more and more, are finding themselves lawyering up and arguing their cases in court.
Some notable court cases involving NFTs in the past two years include Hermès vs. Rothschild (trademark infringement), Nike vs. StockX (also trademark infringement), Miramax LLC vs. Taratino (contract interpretation), Roc-A-Fella Records Inc. vs. Damon Dash (commercial rights to an album), and Yuga Labs vs. Ryder Ripps et al (trademark infringement).
While those are civil cases, there are instances of criminal cases as well, where the FBI or another agency is investigating cases of fraud. These normally apply to rug pulls, such as in the infamous “Frosties” case, where the U.S. government accused the two founders of the collection with fraud and money laundering. Usually, in these cases, collection showrunners promise buyers utility, then run away with the money.
Although these cases may look bad for the NFT space, some may argue that they will benefit the space in the long term. First, rug pullers will be less likely to participate, as their actions could result in criminal prosecution, and second, that the court cases provide a legal framework for NFTs to operate in, an important and necessary step for the maturation of the space.
Rarity Sniper will be here to follow along with any major court cases and report back if needed.