According to the Judge, the former OpenSea product manager deliberately used insider information to take advantage of NFT trading.
A District Judge has sentenced a former OpenSea product manager to jail for three months for offenses involving insider trading, wire fraud, and money laundering. A judge at the District Court in the Southern District of Manhattan, New York, added three months of home arrest and three years of supervised release to the ex-product manager’s sentence.
Chastain stood accused of using his position at the world’s largest non-fungible token (NFT) marketplace to earn thousands of dollars illicitly. The product manager, whose responsibility involved selecting what tokens would make OpenSea’s home page, bought plenty of these tokens before they made it there. In most cases, featuring on OpenSea’s homepage boosted sales.
Chastain bought these tokens early and then put them up for sale shortly after their feature. The case states that the former OpenSea product manager made up to 500% of his initial purchase price. Chastain allegedly made over $57,000 from these trades. At the court hearing, the OpenSea manager said:
“I am here today because two years ago I let down the community I was serving and lost sight of the person I aspired to be. I’m sorry for putting my colleagues and friends at OpenSea through this ordeal.”
Chastain will also pay a $50,000 fine in addition to surrendering 15.98 ETH, nearly $26,000, and undertake 200 hours of community service, for the illegal NFT trades. The former OpenSea manager is free on bail until the 2nd of November while his attorney tries to extend the date to prepare an appeal.
Judge Admits Difficulty in Judging Former OpenSea Manager Case
Chastain’s lawyers had argued that the former product manager was not guilty of wire fraud since NFTs are neither securities nor commodities. Most insider trading cases involve securities-fraud charges where people are accused of trading shares using private information. Chastain’s charge was a little different, as his wire fraud charge involved the wrongful use of confidential business details. These specifics spurred several attorneys who believed that the case deserved dismissal before trial. Their argument was that Chastain’s conviction could twist insider trading law to give prosecutors more room to charge nearly anyone who views private information with fraud, including whistleblowers.
District Judge Jesse Furman also described the sentence as “unusually difficult” because of the charges. Furman said he wonders whether the case would have had much weight if it was not “in a slightly sexy new arena” like cryptocurrencies. According to the Judge, there were “ambiguities at OpenSea at the time” as it was a “fairly new company”. However, Furman concluded that Chastain’s response to OpenSea executives makes it clear that the former product manager “knew what he was doing and he took advantage of an opportunity”.
Although Chastain faced a possible jail term of 20 years on each count, prosecutors asked for a 21-month to 27-month range in accordance with federal sentencing guidelines. Prosecutors argued that the range was necessary to deter inappropriate conduct, especially in new markets. They also said “robust sentences” would discourage anyone looking to cheat in the future.