• Nathaniel Chastain was charged with wire fraud and money laundering.
• NFTs are tokens linked to digital images, collectible items, and avatars.
• Paris Hilton, Gwyneth Paltrow, and Serena Williams have boasted.

In what they called the first insider trading case utilizing non-fungible tokens, or NFTs, US officials charged a former manager at a digital exchange platform with fraud and money laundering.

Nathaniel Chastain was working as a product manager at New York-based OpenSea last year when he covertly purchased dozens of NFTs that were set to be displayed on the platform’s home page, according to a statement released by federal authorities on Wednesday.

Chastain, 31, went on to sell the NFTs for two to five times the initial price after they got star billing at the OpenSea website, the criminal case against him states.

NFTs are tokens linked to digital images, collectible items, avatars in games, or objects in the burgeoning virtual world of the metaverse.

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“NFTs might be new, but this type of criminal scheme is not,” US attorney Damian Williams said in a release. “Nathaniel Chastain betrayed OpenSea by using its confidential business information to make money for himself.”

Chastain was arrested in New York on Wednesday on charges of wire fraud and money laundering that each carry a maximum penalty of 20 years in prison, prosecutors said.

US media reported that he was later released on bail after entering a non-guilty plea.

The arrest was touted by prosecutors as the first-ever insider trading bust involving digital assets.

“With the emergence of any new investment tool, such as blockchain-supported non-fungible tokens, there are those who will exploit vulnerabilities for their own gain,” FBI assistant director-in-charge Michael Driscoll said in the release.

Part of Chastain’s job was to pick NFTs to be featured on OpenSea’s homepage, with the choices kept secret because prices typically jumped after they got top billing, the criminal complaint said.

Paris Hilton, Gwyneth Paltrow, and Serena Williams have all boasted about their ownership of NFTs, and many under-30s have been persuaded to risk in the hope of generating a rapid profit.

For much of the year, prices have decreased and the industry’s reputation has suffered.

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