The former OpenSea employee will spend three months in prison, followed by three months of home confinement and three years of supervised release.
Nathaniel Chastain, a former product manager at OpenSea, a leading non-fungible token (NFT) marketplace, has been sentenced to a three month prison sentence in a landmark NFT insider trading case.
US Attorney Damian Williams of the United States Department of Justice sentenced the former executive on August 22.
Following his three month prison term, Chastain will also serve three months of home confinement followed by three years of supervised release. He must also pay a fine of $50,000 and forfeit any Ethereum he made trading the featured NFTs.
Chastain’s conviction is the first of its kind relating to insider NFT trading.
At OpenSea, Chastain was responsible for selecting NFTs to be featured on the homepage. The platform usually keeps the identity of featured NFTs confidential until they are live, but as an employee, Chastain had knowledge of what NFTs would be featured.
Using this confidential information, Chastain “secretly purchased” dozens of NFTs before they went live, later selling them at profits of two to five times the price he paid.
To conceal the fraud, the ruling outlines, Chastain made the purchases and sales using a range of anonymous wallets and OpenSea accounts.
U.S. Attorney Damian Williams said: “Nathanial Chastain faced justice today for violating the trust that his employer placed in him by using OpenSea’s confidential information for his own profit. Today’s sentence should serve as a warning to other corporate insiders that insider trading – in any marketplace – will not be tolerated.”
The sentencing is the latest blow for OpenSea.
OpenSea faced huge backlash last week after it made creator fees optional for new collections launched from September 2023.
Instead, royalties will become ‘tips’—a percentage of sale price that sellers are at will to give the original creator.
The decision was met with huge criticism, because one of the most attractive aspects of NFTs for artists and creators was that they can get perpetual royalties on their work.
SuperRare’s CEO John Crain lambasted the decision by OpenSea, emphasizing the importance of royalty fees in the NFT ecosystem.
“Royalties on secondary sales are fundamental to the NFT art revolution… [and] core to artist sovereignty, and the future of this movement,” John said in a statement. “It’s unfortunate to see a trend going back on this as an industry.”
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