Conviction of former OpenSea product manager could broaden federal enforcement of wire fraud charges, legal experts say

After two days of deliberations, a jury on Wednesday found the former OpenSea product manager guilty of both wire fraud and money laundering. It’s unlikely he’ll be required to serve four full decades in prison, but, even with all of the evidence presented by prosecutors, some have argued that Chastain has been singled out—and that more serious crimes are rampant in the crypto space.

Nate Chastain going down while far more shady shit is publicly posted on Twitter daily

— PhantomScribbler ???????? (@phantom_scribbs) May 4, 2023

Why is Nate Chastain the poster child for Web3 insider trading when there are dozens of known scammers that have stolen 1,000x more?

Makes no sense. Gross injustice imo. pic.twitter.com/tLkXovzRtQ

— Degentraland (@Degentraland) May 4, 2023

Chastain’s actions were first noted by sleuths on crypto Twitter. One in particular, who uses the handle @RiceFarmerNFT, began scrutinizing Chastain’s transactions using EtherScan in September 2021. The anonymous crypto and non-fungible token trader had noticed that an unidentified wallet profited from buying and then selling an NFT that later appeared on OpenSea’s homepage. That anonymous wallet later sent Ether to a different wallet containing the CryptoPunk that was Chastain’s profile picture on Twitter.

So did @natechastain really abuse his power by front-running projects on the @opensea home page in order to profit?

Let’s take a look: pic.twitter.com/tpJD1Y0pK2

— ricefarmer.eth ???? (@RiceFarmerNFT) September 15, 2021

In part because of the transactions singled out on Twitter, Chastain was hit with charges in June 2022. He was accused of misusing information about which NFT collections were going to be listed on the OpenSea’s homepage—which usually caused price spikes—in order to personally pocket thousands of dollars. He pleaded not guilty.

Instead of charging Chastain with insider trading as it’s usually defined—an action or actions that involve securities—prosecutors instead brought a broader charge against him: wire fraud.

Lawyers for Chastain argued in court that information about which NFTs were to be listed on OpenSea’s homepage wasn’t confidential information in the company’s eyes when Chastain worked there—a necessity in proving he committed wire fraud. It was only until after he left OpenSea that the company passed new rules, Chastain’s lawyers argued.

Prosecutors said Chastain violated his confidentiality agreement with OpenSea and that he knew what he was doing was wrong because he used multiple anonymous wallets to obfuscate his transactions.

The case’s outcome may have implications far beyond financial markets. Legal experts have said federal prosecutors now may be empowered to apply wire fraud charges more broadly in various disputes, with Chastain’s lawyers noting how breaches of employment contracts could be criminally punishable by the federal government.

David Miller, a lawyer for Chastain from the firm Greenberg Traurig, said in a statement to Fortune: “We respect the jury process and appreciate the jury’s time and effort. We disagree, however, with the jury’s verdict and we are evaluating our options.”

Meanwhile, prosecutors have brushed aside any attempt to label this case as novel.

“Although this case involved trades in novel crypto assets, there was nothing particularly innovative about his conduct—it was fraud,” Damian Williams, the U.S. Attorney for the Southern District of New York, said in a statement. “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.”