OpenSea Employee Indicted for Laundering of Monetary Instruments
An OpenSea employee has been charged with violation of 18 U. S. C. 1956 (laundering of monetary instruments). As specifically referenced at paragraph 11 of the indictment (see #1 below), the employee acted as follows:
To conceal his purchase of featured NFTs before they appeared on OpenSea’ s homepage, NATHANIEL CHASTAIN, the defendant, used anonymous OpenSea accounts , instead of his publicly—known account in his own name, to make the purchases and sales. He also transferred funds through multiple anonymous Ethereum accounts in order to conceal his involvement in purchasing and selling the featured NFTs. CHASTAIN used new Ethereum accounts without any prior transaction history in order to further conceal his involvement in the scheme.”
It’s alleged he did this with 45 NFTs on 11 different occasions (paragraph 12).
First let me say no legal or financial advice is being given in this post (disclaimer here). I’m simply sharing my take on a breaking story and subject that I believe everyone in the Web3 space needs to pay attention to.
As I mentioned more than once during my presentation 3 weeks ago at CEX, I believe we are going to see more and more state and federal law enforcement agencies enforce well established laws like this one in the Web3 spaces. Frankly, taking my last 3 decades of practice into consideration, I’ve observed more innocent and negligent mistakes and more intentional wrongdoing in the Web3 spaces over the last 2 years than in the last 35 years of practicing law. Moving forward, I think we all need to keep an eye on the investing, financial, and IP aspects of this tech.
Just like the “Frosties NFT indictments (see #2 below) and the $100M BlockFI fine (see #3 below), paragraph 11 of the 10 page Chastain indictment clearly shows the defendant’s attempt to hide what he knew was wrong and illegal.
I believe 18 U. S. C. S 1956 (laundering of monetary instruments) and similar state and federal statutes, as they may apply to Web3 and specifically, NFTs, will be used often, and should be. Creating and/or participating in one or more digital transactions knowing that the transactions were designed in whole and in part to conceal and disguise the nature, the location, the source, the ownership, and the control of the proceeds of specified unlawful activities is wrong, illegal and a crime.
One of the good things about the Biden Executive Order (see #4 below) is that the administration reached out to all the top agencies for input and advice on how to monitor, regulate and protect consumers. The desired protection is not only from the acts of one individual (like in the OpenSea case), but from the wrongful and illegal acts of large international global actors. Most lawyers on both sides of the political aisle are comfortable with the EO because it seeks objective input to ascertain all the issues and then determine what needs to be done to deal with the issues. Attorney Ira Rothken and I dived deep into the EO on March 11, 2022, here https://mitchjackson.com/2022/03/11/biden-executive-order-digital-assets/
What do you think about the OpenSea case? What changes would you like to see, in the Web3 spaces, to help protect consumers?
#1: US vs Chastain (OpenSea case)
#2: New York earlier this year (two people charged with one count of wire fraud, in violation of 18 U.S.C. § 1349, which carries a maximum sentence of 20 years in prison; and one count of conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h), which carries a maximum sentence of 20 years in prison)
#3: The Securities and Exchange Commission charged BlockFi Lending LLC (BlockFi) with failing to register the offers and sales of its retail crypto lending product. In this first-of-its-kind action, the SEC also charged BlockFi with violating the registration provisions of the Investment Company Act of 1940. To settle the SEC’s charges, BlockFi agreed to pay a $50 million penalty, cease its unregistered offers and sales of the lending product, BlockFi Interest Accounts (BIAs), and attempt to bring its business within the provisions of the Investment Company Act within 60 days. BlockFi’s parent company also announced that it intends to register under the Securities Act of 1933 the offer and sale of a new lending product. In parallel actions announced today, BlockFi agreed to pay an additional $50 million in fines to 32 states to settle similar charges.)
#4 Biden Executive Order (podcast discussion)
CEX Event (recorded presentations)