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NFT Marketplace Meets Insider Trader

Markets
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Image Credit: Andrew (Flickr)


The Case Against an NFT Marketplace Employee that Allegedly was Front-Running

New markets allow new chances for manipulation, rigging, or just good old-fashioned trading on insider information. While the regulatory agencies are still trying to define where they fit in the blockchain asset explosion, some on the inside might already be exploiting what they know may have already defined their role. The Department of Justice has charged a former OpenSea employee in the first-ever NFT insider trading case on Wednesday (June 1).

The allegations concern insider trading in NFTs on the OpenSea platform, the largest online marketplace for the purchase and sale of NFTs. In violation of the employers rules and his duty of trust and confidence to customers and OpenSea, the allegations are that he exploited inside information of what NFTs would be featured on OpenSea’s homepage. The allegations also imply he did this for his own personal benefit.

The employee was in part responsible for selecting NFTs to be featured on OpenSea’s homepage. OpenSea is said to have been properly responsible by keeping confidential the identity of featured NFTs until they were featured on its homepage. After an NFT was posted on OpenSea’s homepage, the market price for that NFT, and for other NFTs created by the same artist, usually increases substantially.

From about June 2021 to at least September 2021, The employee is accused of using OpenSea’s confidential business information about what NFTs were going to be featured on its homepage. He secretly purchase dozens of NFTs shortly before they were featured. After those NFTs were featured on OpenSea, the employee sold them at profits of two- to five times his initial purchase price. Anonymous digital currency wallets were used to conceal the fraud, according to reports.

The person charged is a 31-year-old from New York City. The charges are wire fraud and money laundering, each of which carries a maximum sentence of 20 years in prison. The sentences are prescribed by Congress, however, any sentencing of the defendant will be determined by a judge.

This case is being prosecuted by the Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Thomas S. Burnett and Nicolas Roos are in charge of the prosecution.

His alleged crimes were uncovered by Twitter “sleuths” that were able to identify the owner of the anonymous accounts. The employer said in a statement that it was aware of insider trading. Opensea has since implemented new policies to prevent future insider trading among its employees.

The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

Paul Hoffman

Managing Editor, Channelchek

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Sources

https://www.justice.gov/usao-sdny/pr/former-employee-nft-marketplace-charged-first-ever-digital-asset-insider-trading-scheme

https://markets.businessinsider.com/news/currencies/nft-insider-trading-charge-doj-former-opensea-employee-crypto-2022-6

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