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Insider Trading Prosecution in 'Insane' NFT Case

Following Chastain's charges of wire fraud and money laundering last week, the crypto community has been eagerly anticipating what might come next.

A federal grand jury indicted Nat Chastain on charges of insider trading in NFTs sold on the OpenSea exchange. It is no surprise that many in the crypto world are freaking out. Loopify, a Web3 builder with 196,000 followers on Twitter, said, "They'll come for other people next. It's starting." NFT media company founder Roberto Nickson was also shocked by the news. He tweeted, "Insane." “There will be no more games from the U.S. government. Suddenly, the market has lost its free-wheeling feel." “I hope I don't become one of those influencers now who openly promote rug pulls for pennies," tweeted, Web3 developer, Bender.

Following Chastain's charges of wire fraud and money laundering last week, the crypto community has been eagerly anticipating what might come next. While there is a lot of fear in the air, the aftermath of this novel case might be positive for crypto. NFTs could enter a new phase of maturity due to this development.

According to Nic Carter, co-founder of blockchain data aggregator Coinmetrics, “It should be evident that confidential information should not be exploited for financial gain. Many federal officials are getting serious about following up their tough talk from a year ago with action.”

Misleading and False Information

This case follows the guilty plea of Arthur Hayes, the co-founder of BitMEX, the cryptocurrency derivatives pioneer, for violating the Bank Secrecy Act by "willfully" failing to conduct anti-money laundering checks for the platform's clients.

On June 2, the CFTC charged Gemini Trust Co., the crypto concern controlled by the Winklevoss brothers, for making "false or misleading statements" during the launch of a Bitcoin futures product. An email sent to media outlets promises that Gemini will defend itself.

Following Terra's collapse, U.S. Treasury Secretary Janet Yellen said it was "urgent" to regulate stablecoins. It is now the first case of its kind in the NFT space. Former OpenSea head of product, Chastain, is accused of buying NFTs he knew the marketplace would sell on its homepage using insider information.

Value Would Soar

As alleged in the indictment, he pocketed approximately 20 ETH ($40,000 at the time) after they were showcased on the leading platform in the booming market, which was handed over to U.S. prosecutors in Manhattan. The maximum sentence for each charge facing Chastain, a resident of New York City, is 20 years.

A growing trend in financial crime is the rise in crypto and digital payment crimes, such as insider trading and fraud. According to the DOJ, Chastain used anonymous OpenSea accounts and Ethereum addresses to conceal the fraud proceeds' nature, location, source, ownership, and control. After hearing about Chastain's alleged conduct, OpenSea launched an internal investigation, as Chastain's lawyer, David Miller, told Reuters, "We are confident he will be exonerated once all the facts are known."

Insider trading charges are usually brought against hedge fund traders, not executives dealing in Bored Ape Yacht Club imagery. Brady Perry, an attorney specializing in regulatory and government investigations, explained that although this is an "insider trading" case, NFTs are still not securities.

If they were, then the Security Exchange Commission (SEC) or CTFC would have been involved in Chastain's case. While there has been much discussion about regulating crypto products, Perry explained that no single regulatory body oversees them.

The rise in crypto and digital payment crimes, including insider trading and fraud, has been a growing trend in financial crime. The main reason is the lack of clarity on the regulatory structure. Coupling the new technology with the traditional financial crime methods and the entry of retail customers looking for the latest trends is a recipe for nefarious conduct.

After invading every industry ranging from luxury fashion to environmental protection, the NFT market has stayed up despite the growing bear market. But, there are problems in the NFT industry. A volatile and complex space, regulators have only begun to try to make it safe for the public. Having clear rules makes it easier for entrepreneurs to build.

For the time being, crypto remains a wild and unpredictable frontier.