DOJ files first criminal charges against cryptocurrency insider trading scheme

The Department of Justice put bad actors in the cryptocurrency community on notice Wednesday by filing the first-ever criminal charges against an alleged digital asset insider trading scheme.

The DOJ charged Nathaniel Chastain, a former product manager with OpenSea, a non-fungible token marketplace, with wire fraud and money laundering for allegedly using nonpublic insider information on what tokens were going to be featured on OpenSea’s front page for his personal financial gain. NFTs are digital assets on the blockchain used to represent ownership of artwork, collectibles, and real-world items.

“NFTs might be new, but this type of criminal scheme is not,” U.S. Attorney Damian Williams said Wednesday. “As alleged, Nathaniel Chastain betrayed OpenSea by using its confidential business information to make money for himself. Today’s charges demonstrate the commitment of this Office to stamping out insider trading — whether it occurs on the stock market or the blockchain.”

MADISON CAWTHORN REAPED PROFITS WITH ALLEGED CRYPTO ‘PUMP AND DUMP’ SCHEME, FILING SHOWS

Chastain was responsible for selecting which NFTs would be featured on OpenSea’s front page when he worked at the company, the DOJ said in a press release. He allegedly purchased dozens of NFTs just before he knew they were set to appear on OpenSea’s front page, then sold them for investment returns upwards of 500% just after they appeared on the site’s front page.

FBI Assistant Director-in-Charge Michael J. Driscoll said authorities would “aggressively pursue” actors who illegally manipulate digital asset markets for their own personal gain.

“In this case, as alleged, Chastain launched an age-old scheme to commit insider trading by using his knowledge of confidential information to purchase dozens of NFTs in advance of them being featured on OpenSea’s homepage,” Driscoll said. “With the emergence of any new investment tool, such as blockchain supported non-fungible tokens, there are those who will exploit vulnerabilities for their own gain. The FBI will continue to aggressively pursue actors who choose to manipulate the market in this way.”

The charges were filed less than a week after outgoing Rep. Madison Cawthorn (R-NC) revealed Friday that he sold upward of $250,000 of the Let’s Go Brandon meme cryptocurrency on Dec. 31, 2021, the day it saw its market value peak. Less than a month later, the meme coin had lost 100% of its value.

LGBCoin faces a class-action lawsuit for allegedly scamming retail traders by orchestrating a “pump and dump” scheme with the coin.

Multiple watchdogs previously told the Washington Examiner that Cawthorn may have implicated himself in an insider trading scheme with his fortuitous trades of LGBCoin and close relationship with the coin’s ringleader.

Cawthorn disclosed in a periodic transaction report filed Friday that he purchased between $100,001 to $250,000 worth of LGB on Dec. 21. He then sold a portion of his LGBCoin holdings on Dec. 31 for between $100,001 and $250,000.

Cawthorn saw his investment in the coin increase by upward of 97% during the 10-day period he held the coin, according to LGBCoin’s market data.

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“It’s very damning,” said Craig Holman, a government affairs lobbyist with Public Citizen previously told the Washington Examiner. “The timing is spot on for what suggests to be insider trading. He buys the stock, it increases dramatically in value, and he sells it at the peak moment. That’s what appeared to be what was going on in the first place, and this really confirms it.”