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Regulation

NFT Marketplace Worker Charged With Wire Fraud and Money Laundering

Nathaniel Chastain was arrested for what the Justice Department calls the ‘first ever digital asset insider trading scheme.’

By Michael Katz



The Justice Department has charged a former product manager at Ozone Networks, Inc., also known as OpenSea, with wire fraud and money laundering in connection with what it named the first ever digital asset insider trading scheme.

According to an unsealed indictment filed in the U.S. District Court for the Southern District of New York, Nathaniel Chastain used confidential information about which non-fungible tokens were going to be featured on the homepage of OpenSea, the largest online NFT marketplace.

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An NFT is a digital asset stored on a blockchain that is typically associated with a digital object, such as a digital artwork. The NFT also provides proof of ownership of the digital object and a license to use the object for specific purposes.

Beginning around May 2021, the top of the homepage of OpenSea’s website started displaying featured NFTs, which were changed multiple times per week. The identity of the particular NFT that OpenSea would feature was its confidential business information because it was not publicly available until the featured NFT appeared on the OpenSea homepage. The values of featured NFTs and other NFTs made by the same creator typically rose sharply once the featured tokens appeared on the OpenSea homepage due to the increase in publicity and resulting demand.

As part of his job, Chastain was responsible for choosing which NFTs would be featured on OpenSea’s homepage. The indictment alleges that from at least June to about September of 2021, Chastain used OpenSea’s confidential business information about which NFTs were going to be featured on its homepage to secretly acquire dozens of NFTs shortly before they were featured. After the NFTs were featured on OpenSea, he allegedly sold them at profits of two to five times the initial purchase price. Chastain allegedly purchased a total of approximately 45 NFTs on approximately 11 separate occasions.

According to the Justice Department, to cover his tracks, Chastain allegedly used anonymous OpenSea accounts instead of his publicly known account in his own name to make the purchases and sales. He also allegedly transferred funds through multiple anonymous ethereum—a cryptocurrency system—accounts to conceal his involvement in purchasing and selling the featured NFTs. Chastain also used new ethereum accounts without any prior transaction history in order to further hide his involvement in the scheme, according to the indictment.

“NFTs might be new, but this type of criminal scheme is not,” U.S. Attorney for the Southern District of New York Damian Williams said in a statement.  “As alleged, Nathaniel Chastain betrayed OpenSea by using its confidential business information to make money for himself.”

Chastain, 31, of New York City, is charged with one count of wire fraud and one count of money laundering, each of which carries a maximum sentence of 20 years in prison.

Related Stories:

SEC Busts Alleged Silicon Valley Insider Trading Ring

Financial Firm Head Indicted in Alleged Insider Trading Scheme

Digital Token Registrations Shut Down by SEC

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Home > News > Risk > Can the Fed Drive 75? Will It?
Risk

Can the Fed Drive 75? Will It?

A lot of central bank observers think inflation is dire enough to go for the big 0.75 percentage point rate increase.

By Larry Light


As the stock market sinks into the bear pit, one question is animating Wall Street today: Will the Federal Reserve’s policymaking panel hike its benchmark rate by 0.75 percentage point at its Wednesday meeting? Or stay with the previously telegraphed 0.50 point?

There’s growing sentiment on Wall Street and Washington that the Fed may impose the 0.75 point boost tomorrow.

Federal Reserve Chair Jerome Powell said last month that he wanted to “avoid adding uncertainty,” but also pointed to possible “further surprises” in inflation data. If astonishing inflation results occurred, he said the Fed would need to be “nimble.” Since then, he has had a heckuva surprise: The Consumer Price Index for May came in at 8.6%, versus 12 months before, far above what forecasters expected (8.1%).

So now, Barclays, Goldman Sachs, and JPMorgan Chase all expect a 0.75 percentage point hike tomorrow. “They’ve made it pretty clear that they want to prioritize price stability,” wrote Pooja Sriram, Barclays’ U.S. economist, in a note. “If that is their plan, a more aggressive policy stance is what they need to be doing.”

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“This is when being nimble matters,” Diane Swonk, chief economist at Grant Thornton, told the New York Times. Choosing a 0.75 point hike “would underscore their commitment to avoid mistakes of the 1970s.” Back then, the Fed initially delayed acting on tightening policy, which let the inflation contagion worsen.

Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, points to the shock of the most recent CPI reading and the ongoing dismay of Americans enduring gasoline topping $5 per gallon and grocery prices leaping 10%. The impact of that on consumers is why 0.75 is possible, he argues. “That would send a strong signal to the markets” that the Fed means business about combating inflation, he says.

The Fed had been indicating that it would proceed with half-point increases, and Goldwein thinks that is the most likely outcome tomorrow “by a small percentage” because of the Fed’s previous emphasis on this scenario.

But if the CPI continues on its current trajectory, he warns, it will hit 10.1% by year-end.

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