Nathanial Chastain, former head of product at the non-fungible token (NFT) marketplace OpenSea was found guilty of money laundering and wire fraud in a New York City federal court. The digital assets insider trading case is a first-of-its kind according to prosecutors.

The verdict concludes months of investigation and a three-day trial which heralds a turning point for insider trading cases involving digital assets, according to the US Attorney’s Office.

“Today’s sentence should serve as a warning to other corporate insiders that insider trading – in any marketplace – will not be tolerated,” said U.S. attorney Damian Williams.

The offences took place in 2021 when Chastain secretly purchased dozens of NFTs before they were to be featured on the homepage and made a profit over $50K (£39.4K). 

Once they were featured, he sold them at profits of up to five-times the initial purchase price. To conceal his activity, he used anonymous wallets and accounts on OpenSea. 

Chastian’s defence was based on arguing the crime did not yet apply to NFTs since they are not considered securities in the same way as stocks, bonds, or mutual funds.

His lawyers also tried to argue that knowing what was going to be promoted did not count as confidential information, which was undermined by his own choice to use anonymous Ethereum wallets to cover his actions.

“Although this case involved trades in novel crypto assets, there was nothing particularly innovative about his conduct — it was fraud,” said Williams. 

“A jury has found that Chastain is guilty of using inside information for his own personal gain, and he now faces time in federal prison.”

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Despite this information, the U.S. District Judge claimed the sentence was difficult to decide since he doubted the case alleging insider trading worth such a relatively small amount would have been brought if it had not occurred in the arena of cryptocurrency and blockchain. 

Therefore, even though Chastian faced a maximum sentence of 40-years in prison, he will only face three months behind bars. Along with that, he will need to complete 200 hours of community service, pay a $50K fine, and forfeit 15.98 Ether – the cryptocurrency built on the Ethereum blockchain – which is worth roughly £20.4K. 

OpenSea is the largest marketplace for NFTs and holds a valuation of roughly $13.3 billion (£10.5bn). In the year Chastian committed his insider trading, the company made $365m (£288m) in profits. It has over 1 million registered users, and 121 million monthly visits. 

However, compared to peak sales in September 2021, the NFT market has seen an overall decreasing trend. The aggregated sales value in the most recent report from Statistica in 2023 amounted to roughly £11m, compared to the £696.3m recorded in 2021.