Overview
A split panel of the U.S. Court of Appeals for the Second Circuit, in United States v. Chastain (No. 23-7038), recently voted 2-1 to vacate convictions for wire fraud and money laundering because of improper jury instructions explaining "property" as applied to confidential business information. The divided panel held that confidential business information must possess commercial value to the company to be considered "property" under the federal criminal wire-fraud statute at 18 U.S.C. § 1343. Under this holding, the government cannot secure a conviction for wire fraud (or money laundering predicated on that wire fraud) based on mere misappropriation of information and/or a departure from business ethics related to confidential information if that information does not have commercial value to the business, even if deemed "confidential" internally. Judge Cabranes, dissenting in part, asserted instead that a company's exclusive right to use confidential information should itself constitute property—even if the company chose not to trade on the information or if it chose to publish the information for free. As of publication, the U.S. Department of Justice has until October 29, 2025 to seek U.S. Supreme Court review or otherwise announce a case resolution (whether a retrial or a dismissal of charges).
Case Summary
Nathaniel Chastain worked as Head of Product at OpenSea, an online marketplace for non-fungible tokens (NFTs). As part of his duties, Chastain selected specific third-party NFT projects to be featured on the front page of OpenSea's website. Each time a project was featured, the increased publicity was expected to—and did—increase the value of NFTs connected to that project. Chastain anonymously purchased certain NFTs before featuring the project tied to those purchased NFTs on OpenSea's website. Once the NFTs increased in value, Chastain sold the NFTs for a profit. A jury in the Southern District of New York found Chastain guilty of wire fraud and money laundering (for which wire fraud was the predicate offense).
To obtain a conviction for wire fraud, the government must establish that a defendant (1) "devise[d]" or "intend[ed] to devise" a scheme; (2) to "obtain money or property"; (3) "by means of false or fraudulent pretenses, representations, or promises." 18 U.S.C. § 1343. The government's theory of prosecution was that the identity of the NFTs that would be featured on OpenSea's website constituted OpenSea's property, and that Chastain had devised a scheme to defraud OpenSea when he used that information to profit personally. To be clear, there was no fraud-on-the-market theory or similar theory suggesting Chastain was defrauding the sellers of NFTs by anonymously engaging with them without disclosing that he was selecting the related NFT projects for featured placement on OpenSea. Likewise, the government avoided characterizing the NFTs as property, a security, or anything else by framing the case as one where the company was the victim, with the property obtained being the confidential business information about which projects would be featured when.
The Second Circuit vacated Chastain's conviction, concluding that the District Court erred in its formulation of jury instructions regarding the definition of "property" under the wire-fraud statute. The District Court instructed that information could be "property" if the company maintained exclusive rights to that information, without first establishing any economic value assigned to that information by that company. The Second Circuit disagreed. It held that confidential business information must have commercial value to its owner to qualify as "property." Thus, it also held that the District Court significantly erred by instructing the jury that Chastain could be convicted even if the information he used improperly lacked commercial value to OpenSea—the lawful owner of that information.
The Second Circuit held that another significant error occurred when instructing on the "scheme" element (separate from the "property" element). The jury was told that a "scheme to defraud" could be found to exist based merely on a "departure from fundamental honesty and fair play." The Second Circuit held that a scheme requires an intent to deprive one of property—not just unethical conduct. Absent required proof of both the property's value and an intent to deprive the owner of such value, Chastain's convictions were vacated (because such error was not harmless).
Notably, the Second Circuit upheld the District Court's exclusion of evidence about internal debates over the clarity of the company's information policies. The court reasoned that the legal effect of the policies turned on the company's conduct and protections, not on subjective perceptions or understandings of employees. Likewise, the Second Circuit affirmed the exclusion of evidence related to another employee's trading of NFTs, as Chastain had provided no evidence that he knew of that employee's trading at the time of his own trades and use of OpenSea information, such that it would bear on an assessment of his intent or good faith in making his own trades using confidential business information.
Takeaways
Under the Second Circuit's standard, not all confidential business information qualifies as "property" in a prosecution for wire fraud. For confidential information to be a prosecutable "property" interest here, it must have "commercial value" to the holder, meaning the company has an economic interest in its exclusive use or in keeping it confidential.
Securing Federal Protection – Refining Confidential Information Regimes
To successfully prosecute misappropriation of information as wire fraud, the government must now demonstrate (using a company's internal documents and practices) that information designated as confidential has commercial value (to the company) if misused in the sort of scheme contemplated under the wire-fraud statute. Notably, this element is particularly important in cases where a company owns the information at issue and is the victim of the scheme. Cases structured in this manner may be increasingly common where quasi-"insider trading" involves things other than clear-cut securities—such as certain crypto assets, real estate, motor vehicles, equipment rentals, event tickets, collectibles, memorabilia, and other goods with values that can be influenced by key events (e.g., being featured on a notable website, being targeted for development, a pending positive software update or major recall, a notable concert being planned in the area, good or bad news about an athlete, etc.).
Therefore, to assist the government in bringing these sorts of prosecutions, documenting the ways confidential information provides the company with a commercial, competitive, or reputational advantage (to the extent such reputational harm is tied to actual loss of business, not mere abstract injury) can help ensure that the government will have a basis to bring a prosecution based on the misuse of a company's "confidential information." Internal policies, employment contracts, and training materials regarding confidentiality should not merely recite that information is confidential or exclusive but should explicitly link its confidentiality and exclusivity to the economic or competitive value of the information to the company.
Evidence of commercial value can include:
- Internal data valuing information;
- Proof that the company would lose clients, revenue, or competitive position if confidentiality is breached;
- Existence of a market for the information;
- Insurance covering the loss, leak, theft, or misuse of the information; or
- Demonstrated intention to commercialize information (e.g., planned products or strategies relying on the information to create a new revenue stream).
In short, companies seeking to receive the protection of relevant statutes should avoid overbroad or generic claims of confidentiality (i.e., assuming all internal information is "property" for fraud purposes), as courts and prosecutors will now scrutinize whether the information at issue crosses the commercial-value threshold, particularly if this decision stands unchallenged, is affirmed, and/or is adopted in other jurisdictions.
Defense Strategies – Raising the "Commercial Value" Bar and Limiting Exposure in Investigations and Policy Disputes
On the flip side, defendants accused of committing wire fraud by misappropriating exclusive information may rebut the prosecution's accusation by showing that the information was not independently commercially valuable and is therefore not "property" as required to prove wire fraud. The Chastain ruling gives defense counsel a strong basis to challenge charges predicated merely on allegations of confidentiality, requiring the government to identify and prove that the misappropriated information had genuine commercial value to the company.
The Chastain opinion also limits the risk that companies, directors, officers, or employees can be criminally prosecuted for wire fraud based solely on "unethical" conduct or violation of broad workplace rules. It places the burden of proof squarely on the government to link information misuse to genuinely protectable commercial interests, enabling more robust challenges to overreaching fraud allegations.
Defense counsel can more aggressively defend against prosecutions where:
- The company cannot show economic loss or risk of loss from disclosure;
- The supposed "secret" is not actively used in the business or is shared openly without protection or monetization;
- The company had no expectation, management, or enforcement of confidentiality over the information claimed as property; or
- The conduct resulting in the "fraud" is merely unethical, rather than intended as a scheme to obtain property by fraudulent means.
Division in the Panel and Unsettled Issues
Second Circuit Judge Cabranes penned a separate opinion, concurring with the majority's holding affirming all evidentiary rulings but dissenting from its finding that the jury instructions on the "property" and "scheme to defraud" elements of the wire-fraud statute were erroneous. Under the dissent's view, confidential business information would qualify as "property" regardless of separate proof of commercial value as long as the company treats it as confidential and has an exclusive right to it. Likewise, a scheme to deprive a company of that confidentiality and exclusive right to use would indeed qualify as a fraud because it directly targets property and is not merely an unethical side hustle.
Conclusion
If it stands, United States v. Chastain fundamentally narrows the scope of "property" protected by the wire-fraud statute as applied to confidential business information, requiring a showing of commercial value to victim businesses. The Second Circuit's analysis elevates the need for corporations and their counsel to carefully define, protect, and document the economic significance of confidential information for misappropriation of that information to qualify as a prosecutable federal offense. It remains unclear whether the Supreme Court or other Circuits will adopt the Second Circuit's more strict definition of "property" under the wire-fraud statute.
