A former employee of the NFT marketplace OpenSea has been sentenced to three months in prison on Tuesday in what federal prosecutors have characterized as the first case of insider trading involving digital tokens.
Nathaniel Chastain, aged 33, was found guilty of wire fraud and money laundering back in May. The prosecution alleged that Chastain leveraged confidential information to engage in trading activities related to nonfungible tokens prior to OpenSea’s public promotion of these tokens on its platform.
Before delivering the verdict, which encompassed a $50,000 monetary penalty and a three-month period of home confinement, U.S. District Judge Jesse Furman expressed that determining an appropriate punitive measure was an unusually intricate endeavor. The judge acknowledged that Chastain’s financial gains were relatively modest, and he raised inquiries about whether the case would have been subject to prosecution if it hadn’t unfolded in the context of a novel and captivating realm of commerce. Furman further underscored that Chastain was well aware of the wrongful nature of his actions.
“I believe he’d agree that his conduct was profoundly dumb for a small gain,” the judge said. “What he lost pales in comparison.”
Chastain expressed remorse. “I prided myself on solving problems for my company, and I regret that I created one,” he told the judge.
Prosecutors advocated for a prison term ranging from 21 to 27 months for Chastain, asserting that this would convey a resolute message about the gravity with which insider trading concerning crypto assets is regarded.
Assistant U.S. Attorney Allison Nichols asserted that Chastain had discerned a zone of ambiguity and capitalized on it to his advantage.
Chastain’s legal representatives contended that a sentence devoid of incarceration would be better suited in this context. His attorney, David Miller, emphasized that the case might not have been pursued with such vigor had it not been a groundbreaking issue.
“We shouldn’t be judged harsher because the government is trying to make a point about this area of technology,” Miller said, adding, “This is an isolated misstep in Mr. Chastain’s life.”
The prosecution of Chastain is part of a broader initiative led by the U.S. attorney’s office in Manhattan to closely monitor activities within the cryptocurrency markets. In a parallel case deemed the pioneer instance of cryptocurrency-linked insider trading, Ishan Wahi, a former employee of Coinbase, received a two-year prison sentence in May for divulging confidential information to associates regarding assets set to be listed on the exchange.
Among the office’s notable endeavors in crypto-related enforcement, the impending trial of Sam Bankman-Fried, the founder of FTX, holds a central position. Scheduled for October, this trial represents a pivotal moment. Prosecutors have lodged allegations against Bankman-Fried, asserting that he embezzled billions of dollars from the defunct exchange’s clientele while simultaneously deceiving investors and creditors. Bankman-Fried has entered a plea of not guilty.