Why is nothing working? Why is nothing fucking working?
You piece of shit. Fucking phone.
Fuck. Oh my god, dude.
I don't know where we were. I don't even know where we were.
I don't know. Now, I'm just flustered and
pissed. And look, there's a mosquito,
there's a fucking mosquitoes. I'm not going to let go.
Okay, welcome back everyone. I am Caspian Sea and I'm joined
as usual by my partner in crime. Mr. Bennett Tomlin how are you
today? I'm doing pretty well Cass.
How are you? I'm doing fine.
We're having some technical difficulties to start this out.
But today, we're going to be talking about insider trading.
A weird instance of it. A lot of people are confused.
A lot of people don't really understand.
What the claims are and how they could possibly be justified.
So yeah, we're going to talk about Nathaniel Chastain.
Nate Chastain for short. He worked at Open Sea, which is
the world's largest nft Marketplace I believe.
So let's talk about Nate Chastain.
Why he is in trouble and how we got here, so Bennett.
Can you explain what he did? Yeah, so mate for open sea, was
in charge of deciding what nft projects were going to be
featured on the front page. Page of Open Sea and repeatedly
for several months what he kept doing was using a bunch of
anonymous wallets to purchase from these nft collections right
before he would feature them on the front page.
Choose them to be featured on the front page and then sell
them immediately afterwards. Often netting himself
substantial profits compared to his cause he did this for
several months ended up with a total profit of around. 19,
ether, if I remember, right? And did it on, Total of like 45
different NF teas, or something like that.
And when it was finally publicly revealed things to the work of a
few people in crypto, Twitter, he ended up resigning from open
sea and very recently, we saw the southern district of New
York. Drop these indictments against
him correct. And so, let me go ahead and get
into these indictments for everybody.
I have this called up. We'll go ahead and plop the link
into the description for the episode The sdn.
Why Guy says former employee of nft marketplace charged in first
ever digital asset, insider trading scheme Nathaniel
Chastain. A former product manager at
ozone networks. Incorporated, doing business as
open sea is charged with wire fraud and money.
Laundering in connection with a scheme to commit insider trading
in non fungible tokens or n f TS by using confidential
information about what nft he's were going to be featured on
Open, Seas homepage, for his personal financial gain chest.
Was arrested this morning in New York, New York and will be
presented today in the United States district court for the
southern district of New York. So a lot of people were getting
very kind of confused and upset about this, they suggested
there's no precedent that claims that nft s are a security.
They saw this as essentially Nate being charged with insider
trading and it being related to a Securities charge Can you
discuss why that indeed is not the case.
Well, because they're not pursuing him under any of the
Securities fraud related Frameworks, right?
They're not going after him for like a Securities fraud
violation than going with the much broader wire fraud which is
basically using any Communications Network in a
deceitful way to make money ends up covered under wire fraud.
I'm not a lawyer, that's not a technical definition but if you
do something to seek full and use communication Networks,
There's a good chance you could end up charged with wire fraud
and so they're not claiming he Insider traded Securities.
They're claiming he used this confidential information in a
deceitful way to profit and use these communication networks in
order to do it. And as such, they're charging
him with wire fraud, well, wire fraud and money, laundering, and
the money laundering is and we talked about this little bit on
our episode with Josh Cincinnati, right?
Is the definition of money. Laundering is so broad that
anytime you basically touch money connected to a criminal
act, you can end up Charged with money laundering.
So he did this thing. If you ends up charged with wire
fraud than anything, he did with the money, that resulted ends up
being called money laundering, right?
We end up in this situation where he's not being charged for
the Securities fraud violation. But because he still profited in
this deceitful way, they're still able to charge him with
fraud, which is the important takeaway I think people need to
remember. It's like it's insider trading
but it's not write like this is, this is wire fraud, this is
money laundering, that's the charges.
And there's no precedent setting, kind of craziness,
that's going to be happening with this case as far as I can
tell. Now again, as you stated
importantly, neither of us are lawyers, neither of us know what
the hell were talking about when it comes to law.
Don't trust us to understand whether this is a slam-dunk case
or whether Nate is going to totally get away with it.
And all that, who knows innocent until proven guilty, I think, is
what we need to always work. Also as Much as it seems like
pretty obvious that need did this and like he could very well
get charged, who knows. But that brings us to a really
good point because I think the public doesn't usually reflect
on cases like this and see at the beginning that it was the
public, who kind of called this guy out.
It wasn't a journalist, it wasn't a reporter.
It wasn't a short seller doing a short sale report.
It was somebody On cryptocurrency Twitter.
And if I remember right, it was at zero X Zu.
Whoo-hoo first tweeted on like September 14th.
Hey Ed open. See why does it appear at Nate?
Chastain has a few secret wallets that he appears to buy
your front page drops before they're listed.
Then sells them shortly after the front page, Hypes bike for
profits and then tumbles them back to his main wallet with his
punk on it. Which one Nate Nate, you're
working for a crypto company. How in the world did you think
tumbling back? Back to your wallet with the
pumpkin. It was a good idea.
Yeah. Your entire job is NF T's in
crypto and you sent them back to your wallet with your most
identifiable crypto in it. You're like, oh, but no, you're
right that this was a case that basically crypto Twitter
exposed, these individuals, like at zero X zoom and because of
that, Nate ended up having to resign.
And that what the potential harm he could do was mitigated in
that way. And the side effect is because
Is all a public Ledger once these individuals had documented
their work and shown these transactions.
They gave the like facts of the case in the flow of the funds
were all there in public for the feds to read and use for their
prosecution and and look you and I we don't know if somebody
reported this to get a whistleblower reward, we don't
know. We have no idea what the
behind-the-scenes was for this, but what I think people should
consider and what people I saw people considering this on
cryptocurrency Twitter. A lot of people were joking
like, oh God, they got him for that.
Well, I think I've probably done that a few times and there
seemed to be a lot of, oh, fuck. This could be me.
Energy coming from cryptocurrency, Twitter about
this? I think that's good, huh?
I think that people should be concerned about doing things,
like bank and wire fraud money, laundering insider trading.
You, you should be concerned. These are things that can apply
to almost any industry and To think you could get away with it
because you maybe did an okay job with your opsec your
operational security is banking on a lot that you're you've done
a good job and you probably haven't it's good for them to
know not only our Regulators paying attention to this stuff
but they're probably on cryptocurrency Twitter.
They're probably they're they're probably monitoring the space
and they're reading your tweets. This is proof that that is what
can and does happen is that they pay attention to.
Leslie illegal stuff to our amateur eyes.
It appears to be a pretty slam-dunk case and perhaps
that's why they decided to go after him.
Yeah, I mean I think that is exactly why they chose to go
after him that for the southern district of New York who has a
really high conviction rate on wire fraud cases.
This seemed like a really good opportunity to get a wire fraud
conviction and that once you've proven, you can easily get a
wire fraud conviction for someone in the digital a Set
space using this type of knowledge to make this kind of
profit. I imagine that it is within the
capabilities of the southern district of New York to identify
other people in cryptocurrency who have profited in similar
ways. And so, yeah, I think that's
really why this case could potentially be.
So impactful is because this kind of stuff is pervasive.
There are tons and tons of people in crypto and in the nft
space Developers like members of teams, whatever who are all the
time trading on privileged information and even many of the
stalwart institutions in the space, have some activities and
behavior that looks suspicious like coinbase for years has been
accused that their listings are basically predicated on what
coinbase investors have invested in to make sure that they can
get their liquidity, this case is important because this case
shows that the federal government has a lot of Tools to
pursue this kind of bad behavior and that even without proving
that your little token is a security, they can still go
after you for many of the bad things you do with that little
token. It's very important to realize
that, that, that people seem to think they can outwit the
government by being like, Oh, it's not a security or I'm not
in your jurisdiction or whatever.
They're silly silly excuses, and I can just tell you that those
excuses do not work as Aaron Wise Journalist at Proto's
pointed out, you know bit Max hat was running a prop desk
against its customers. We have Bad actors all over the
place, treating their customers like total horseshit and it is
rampant. It is obvious in the
cryptocurrency space. I don't think anyone would deny
that we need to pause in that point you're making there
because yeah it's really pervasive.
Coinbase has coinbase Ventures. Finance has financed Ventures
bitfenix has fulgor. Elephant blue b.
Kappa And a couple of other firms, they have bit, Max had
their own prop desk. There is so much of that type of
activity at so many exchanges, including the ones who like very
deliberately try to Market themselves as regulated in like
following the good behavior still doing that kind of thing.
And I think this probably leads into what you were about to go
do is that Nate's facing like a potential maximum sentence of 40
years, if these ran consecutively and we compare
that to the sentences for the bit, Max Founders, or for
example, the Ville settlement. That black one had for Eos and
it seems strange. It seems worse than strange.
I know people are probably more
used to me getting upset on this podcast than you, but it does it
really bothers me? This idea that Nate who no one's
going to deny that, what he did was wrong and that he should get
punished for it. I think that is 100% true.
Everyone agrees. No one's going to deny that, no
one. Update the the problem I have
with this is that and we see this as not it's not only this
is not restricted to cryptocurrency, this isn't
finances. Totally like it's every
Financial market place like I think that I don't remember what
that guy's name was the dude who the SEC went after for insider
trading and he had done like a hundred ninety five thousand
dollars worth of insider trading and lost all of the money that
he had Insider Charlie kid. He did a bad job insider
trading, there's nothing to even catch him on.
They nailed him to a cross and it's like, guys, what the fuck
are you doing? Oh, you think Nate.
Chastain is the problem in cryptocurrency.
Granted he's a part of the problem, but do you think
slapping block one with a billion-dollar fine or whatever?
It was? I don't even remember.
Probably less than that, right? Like, that's Yahweh less, right?
So, so you slap block one with a tiny fine for their
multibillion-dollar bullshit who is going to take you?
Lee and how are you, how are you disproving?
The people who say, oh all you need to get past.
The Regulators is a team of good lawyers and a shit ton of money.
If you're poor, you're fucked. But if you're Rich As Fuck, you
can just have your way with them.
And I it's unfortunate because it sure feels like that's real,
right? It feels like that.
Is the reality on the ground. Yeah.
So for those who are unaware, black one raised four billion
dollars for Eos and another billion dollars from selling
their Equity with Many accusations of wash trading,
insider trading privileged information and stuff during the
sale. And then we're find 24 million
dollars, not 1 billion, 24 million 2.5% of a billion.
And then the government cries about how there's all this
bullshit going on in cryptocurrency, oh my God, the
industry is Rife with fraud and scams.
Well hello what the fuck were you?
Doing in 2017. Genuinely, what the actual fuck
were you doing? You slap them slapped, an
obvious obvious rule-breaking company, that was breaking,
every rule that you guys have set up for this stuff.
And at the end, you said here's a tiny little fine.
Meanwhile, your subjugating. This this dude who I'm sure if I
met him, I wouldn't like him. I'm sure he's a total tool but
like 40 years in prison. What the fuck?
Are you smoking? What in, what?
Reality. Does this seem like a fair
reasonable set of rules and implications?
We're like yeah. Maybe the one good time.
I've seen them do a bang-up job and it was 25 years after they
should have done it in the first place, was with Bernie Madoff.
Yep. The guy, deserved a life
sentence. Great.
You did it. Congratulations, you were 20
years late, but at least you caught the guy and put him in
prison for doing something horrifying.
Meanwhile, if this, it just blows it boggles my mind and it
makes You feel like all the people who criticize regulators
and the government and all this stuff, I'm like, they're right
there, fucking right, I can't argue with them.
And we've talked about before that effectively allowing the
bad behavior to continue allowing these Bad actors to go
back out and do these things. Again, weakens the trust in
these institutions, fix it. So in the future, they can't go
after the bad guys, because everyone's like, oh, it's just
the SEC, but are they going to do Gary Gensler?
Talks a big game, he says, cryptos a problem, but he's the
head of the SEC. See, and he's not actually doing
anything. So he obviously doesn't actually
believe cryptos a problem because if he did, he is the
fucking regulator if he wanted to regulate, then he would
regulate. So clearly he doesn't want to
regulate, right is what people end up thinking and there's
other things that contribute right, like organizational and
institutional problems that make it harder for them to pursue
these things. But also that's a fucking
bullshit. Excuse like, we talked about
this when Rohan gray was on to talk about e-cash, right?
It is For bureaucrats to be good at their job, it is possible for
government officials to try to do things and succeed.
We've like set the bar so low in the expectations.
So low, for the people who serve us that they get away with
effectively doing nothing. And then immediately after their
term is up, going into some high paying job, lobbying back to the
same people that they helped set up inside these institutions.
And so, yeah, you're right. It feels really disproportionate
for Nate who made 19 ether from these trades.
Has to be facing a 40-year sentence in prison, which he
almost certainly won't get. It's not going to happen.
We understand that but not stupid people, but it's still.
So, it seems so shocked when we might be steamy us to.
It seems so shocking. It seemed so shockingly,
disproportionate compared to what we see, people get away
with on a day-in and day-out basis that's it.
Regardless of whatever things contribute to that, people's
perception of that. Fundamentally makes our
institutions worse fundamentally makes it harder for us to deal
with real issues and that That's the fundamental problem of this
kind of an action that loss of trust and faith eats away at the
foundations of government and Regulation.
And again, when instead of being able to give people a bunch of
cases where I can go, I hear you but look at this example of them
doing it right. Look at this example of them,
getting the right company to do the right thing.
You know, getting a company that was breaking the law.
They shut that shit down. I can't tell you.
The last time that happened it. I racked my brain and I cannot
remember the last time a regulator You did the right
thing and shut down a bad company.
They don't do it. They don't do it.
The 1930s when they first passed the Securities act and set up
the commission may be right. That's Jim chanos said on the
podcast the journalists, the public, the short sellers, these
are the people who are doing the detective work, the regulator's.
Don't give a fuck. They don't give a shit.
They're doing all the like archiving which look archiving
is necessary. It's important, we need to These
stories after they've happened, you need to set precedence.
You need to, you need to have that stuff.
It's great. Like there's no reason
Regulators need to suck. Regulators just suck because our
politicians suck and our politicians suck because we've
allowed these moneyed interest. Once you benefit from the lack
of Regulation to basically co-opted and corrupt our
politicians. So everyone thinks they can do
whatever they want. Shortly after Nate's insider
trading first came out back in 2021.
There were people on crypto Twitter whose takeaway was well,
the issue is That Nate didn't have enough equity in open.
See if he had been making more from Open Sea.
He wouldn't have needed The Insider trade and that's really
just emblematic of some kind of deeper issue where like people
are willing to sacrifice so much of their morality and ethics in
exchange for funds. And I think that that has really
pervaded, a lot of our society and has led to this corruption
across so many levels. Yeah, you and I were talking the
other day about like what could have possibly stop this from
actually happening. Right, like I think think there
is it's a good question. The solution for some reason
being give the person more money feed, their greed doesn't seem
to be the appropriate response to me, it's like, oh, you know
if we gave the bank robber, a bunch of money, maybe they
wouldn't be a bank robber anymore.
Well yeah. I guess you're probably right.
I don't know that. That's the solution.
It's good to know that it was easy to follow.
You know. It wasn't that hard to catch
this guy doing this incredible? Only illegal thing.
So I guess the blockchain is good for that though, the Luna
and Terra collapse, all of the information coming out about
that has been really murky and it doesn't seem like anyone has
a full grasp of what the hell happened actually still.
And we're talking weeks after the fact, I find that very, very
odd that pushes me to go like, well, as much as everyone loves
to pretend that the blockchain solves all transparency problems
with Finance. Don't think it does.
There is OTC stuff going on and the lfg was doing weird things.
Do Quan was clearly up to some weird ass shit but nobody knows,
nobody can tell you where identify what actually was going
on in the blockchain doesn't help you.
It's the same as like tether where where the reality is you
can look at you can look at the Block Chain that tether the
blockchains, the tether runs on and try to suggest that.
That's well, I guess that's more transparency than the Federal
Reserve. I mean I guess but like Unless
we can see and access the bank accounts and all of their
assets, we actually don't have a fucking clue.
What is going on with tether right?
Yeah and well sir just first things, the Federal Reserve is
regularly audited. You people you can even go read
their audits their online. You can adjust their there,
they're easy to find. I guarantee you if you Google
Federal Reserve audits, you can find them.
My theory on terror and Luna is that the base is Cash.
Team was attacking Tara to get back at do Quan for his rude
comments about Is cash, but no actually like Manson Manson
recently published their analysis of what happened during
the Deep egging, right? And they kind of very subtly
pointed finger, but they can't actually point the finger
because it would get them in a bit of trouble publicly or no,
sorry, jumping about jump, synopsis jump, and it is the
finger. But they can't jump, has done an
analysis, nonsense done, an analysis and Galaxy.
I think also did an analysis, didn't they, the whole point to
tfl withdrawing liquidity from curve as the First thing to
start the de pegging the attackers coming for ya.
And I think this was, this was something you and I said not to
die. Know, we're getting a little off
the nature as same thing. But this was something that I
started getting suspicious of a little bit, like maybe a week
after the Tara Luna stuff happened.
It's a, it was a classic Trope back in 2017, 2018, where people
would be like we got hacked and clearly, it did not mean that
anybody got hacked. It was a Euphemism for we just
took all your cash and something seemed off about the Tara Luna
stuff to me, because nobody could fucking track it.
And so, who knows like you said seemed, like, it came from
inside the house that we don't know what that means.
We don't know what that means. We don't know who that is my
point, being, it's as murky as the normal Financial system.
And the only people getting easily caught are the people who
are doing a really bad job of covering their tracks.
So if you have an OTC desk that you work in tight with with and
you have a bunch of different wallets that you're using, and
you use tornado cash and you constantly are throwing away
certain wallets and your and you're peeling off,
transactions, and you're doing everything perfectly.
Maybe you can make it murky and especially if you if you're a
giant firm, I think, again, our point being Nate's, getting the
short end of the stick, he deserves to be in trouble, he's
getting in way too much trouble. The people who should be
prosecuted are Like do Quan and people like, I don't know, I'm
not going to name any more names but certainly his name pops up
because it's going to need to acquire.
Yeah, because it's such a massive amount of money.
And it just recently happened, I'd like to see more people like
him or maybe like the coinbase thing, where we know a
contractor help do wash trading. Well, maybe that contractor
should get in serious serious trouble.
I don't know. Just a thought.
I think there's a lot of, a lot of companies doing really not
good stuff for the customers, for the Retail public.
They should get in a lot more trouble than some douchebag.
It open see. He deserves he deserve to get in
trouble. He certainly doesn't deserve Max
sentencing. And I hate the way sentencing
Works where they're clearly going to hover this over his
head and be like, well, if you don't want 40 years in prison,
you know, better plea and it's like, well, I guess that's
horrible, though, that's so horrible.
We want to believe everyone. In America is going to get a
fair shot through our judicial System that everyone is going to
get Mike a passionate and well-constructed defense.
That will attempt to prove their innocence or give them the
rights that they should be allotted.
But our judicial system is cruel and capricious and many people
are punished far beyond what is reasonable, right?
That's probably going to do it for this episode if you or any
of your friends, I've been told that our new monetization method
for the crypto critics corner is going to be that.
If you like And subscribe to the channel, we're going to go ahead
and mint and nft for you. It's going to get listed on Open
Sea on all these big platforms, but we are definitely going to
meant more for ourselves and then sell them later obviously
to fund the podcast. We're not doing it to harm
investors there. No insider trading.
Anyway, if you want to get a mint of crypto critics Corner,
nft we're not actually making it.
I'm sorry guys. I was lying.