The recent indictment of an employee of OpenSea, a prominent NFT marketplace, highlights the risk of trading digital assets based on the improper use of confidential information, even where the digital asset is not a security.
OpenSea (operated by Ozone Networks Inc.) often features or promotes specific NFTs for sale on its home page. NFTs that have been featured tend to appreciate in value due to the spotlight shone on them. Thus an individual with confidential information about which NFTs are about to be featured or promoted could purchase some of the NFTs for themselves in advance of the public announcement, turning a profit when the NFTs rise in value after they have been featured or promoted.
The recent indictment of the employee who allegedly engaged in such activity confirmed what many have long surmised; namely, that such activity constitutes wire fraud, and a form of “insider trading.”
The Facts Alleged
On June 1, 2022, Nathaniel Chastain, a former product manager at OpenSea, was arrested on charges of wire fraud and money laundering. Part of Chastain’s job was to select the NFTs that OpenSea would feature on its home page, information that was otherwise kept…