FBI sets sights on crypto economy with arrest of former OpenSea staffer | Non-fungible tokens (NFTs)

A former employee of the leading non-fungible chip market (NFT) has been charged with phone fraud and money laundering as a sign that U.S. law enforcement will no longer turn a blind eye to the crypto economy.

Nathaniel Chastain has left his job as a product manager at OpenSea, the largest marketplace for NFT (the unique cryptographic assets used to indicate ownership of items such as digital art) after being accused of insider trading.

He was arrested by the FBI in New York on Wednesday and charged, in a case that could be troubling to others in cryptography who assumed that prohibited practices in regulated markets were a fair game in the wild west sector.

Chastain is accused of using his insider knowledge of which tokens would appear on the front page of the OpenSea website to buy them shortly before they appeared and sell them immediately, taking advantage of the increased awareness to make a small profit each time.

U.S. Attorney Damian Williams said: “NFTs may be new, but this type of criminal scheme is not … Today’s charges demonstrate this office’s commitment to eliminating insider trading, whether in the stock market or in the blockchain “.

Chastain’s alleged trades were noticed at that time. Thanks to the open nature of the NFT market, where all transactions are written in a public database called the blockchain, observers detected that someone was buying digital assets with a questionable deadline in September 2021.

The anonymous digital wallet used for transactions was soon linked through transactions to Chastain’s own. OpenSea had not issued an explicit policy against that use of inside information at that time and only acted after Chastain’s transactions came to light.

In May, an apparent insider trading scheme was discovered in a leading cryptocurrency exchange: an unidentified user would accumulate large positions in small cryptocurrencies shortly before they were listed on the major stock exchanges and then sell them for profit. . increased interest. A Wall Street Journal report concluded that one of these businesses made a profit of $ 140,000 with an investment of $ 360,000 in less than a week.

But until Chastain’s arrest this week there has been widespread debate over whether such practices were illegal, given the different rules and practices in the industry. For example, the trade in so-called “shitcoins” – cryptographic assets created for no other purpose than to be bought and sold in a speculative market – is openly recognized as being full of practices that would be illegal in a regulated market.

Under the pseudonym Epitaph of “shitcoin influencer”, the latest hiss to increase the value of coins is centered around the “Larp tokens”. He said this referred to “tokens where the team will do everything possible to convince buyers that they are connected with celebrities / musicians / larger tokens.

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“It’s no secret that everything we buy is a scam on some level. The question is not ‘this token is a scam,’ because everyone is, the question is, ‘This scam is done well enough to convince others.’ people to buy from? “

Chastain’s arrest comes as a group of more than 25 cryptography experts wrote an open letter to the U.S. Congress calling for more regulation of the industry. “We urge you to take a truly responsible approach to technological innovation and ensure that individuals in the United States and elsewhere are not vulnerable to predatory financing, fraud, and systemic economic risks in the name of non-existent technological potential,” the group said. he wrote.

Adding to regulatory pressure on Thursday, the Commodity Futures Trading Commission sued Gemini, a New York-based cryptocurrency exchange founded by the Winklevoss twins, alleging that the company misled regulators about the possibility of manipulating the price of bitcoin in a successful effort to convince the agency to allow the creation of a bitcoin futures contract.

An OpenSea spokesman said: “When we learned of Nate’s behavior, we initiated an investigation and finally asked him to leave the company. His behavior violated our employees’ policies and was in direct conflict with our core values ​​and principles.”

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