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OpenSea Admits Its Employee Used Insider Knowledge to Buy NFTs

cryptoknowmics.com 17 September 2021 01:30, UTC

NFT marketplace OpenSea has confirmed allegations of insider trading in the company. On Thursday, OpenSea released a statement admitting that an employee used insider knowledge to buy NFTs before they were promoted on the platform.

While the statement didn’t identify the employee by name, Twitter user ZuwuTV has accused OpenSea’s head of product, Nate Chastain, of purchasing items before they appeared on the marketplace.

OpenSea’s Product Chief Nate Chastain Quits Amid Allegations of Insider Trading

On Wednesday night, Twitter users accused OpenSea’s product chief Nate Chastain of using secret Ethereum wallets to buy NFTs before they were featured on the company’s website.

According to Chinese news portal 8btc, Chastain has earned a collective profit of 18.875 Ether (or $67,000) from the front-running scheme.

Following the shocking reveal, OpenSea released a statement on September 15 saying that it is taking the matter seriously. It has also emerged that Chastain will no longer be working with the company. His LinkedIn profile is listed as “unavailable”, while his Twitter bio reads “Past: @opensea.”

OpenSea registered record-breaking sales in August, with a trading volume exceeding $3 billion. However, the latest development could make a dent in the company’s reputation and erode buyer trust in similar ventures.

Notably, Chastain’s actions, which have been likened to insider trading, could have attracted a hefty penalty or prison time if NFTs were covered by regulations of mainstream finance. According to the US Securities and Exchange Commission, insider trading charges could lead to a maximum fine of $5 million and up to 20 years of imprisonment.

“There’s a lot of chat about regulation right now, but what a lot of these bad actors are doing is clearly against the law right now. Regulators don’t need their powers expanded to be able to combat this sort of fraud and misleading statements,” fintech data analyst Boaz Sobrado stated while referring to the scandal.

OpenSea Amends Internal Policy to Check Use of Privileged Information

In response to the incident, OpenSea has implemented two new policies that would ban employees from using privileged information.

In a blog post published on Wednesday, the company said that it is barring employees from buying or selling collections or creators while they are being featured or promoted, as well as prohibiting them from using “confidential information to purchase or sell any NFTs, whether available on the OpenSea platform or not.”

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