Second Circuit Vacates NFT “Insider Trading” Conviction, Clarifies Property Requirement for Wire Fraud

DLA Piper
Contact

DLA Piper

The US Court of Appeals for the Second Circuit has vacated the conviction of Nathaniel Chastain, a former employee of non-fungible token (NFT) marketplace OpenSea. Chastain had been convicted of wire fraud and money laundering in connection with his trading NFTs based on non-public information about which NFT collections would be listed for sale on OpenSea.

The decision, issued on July 31, 2025, presents key legal developments regarding the scope of “property” under the federal wire fraud statute, particularly as it applies to confidential business information. In the digital asset space, however, the decision may have broader implications for the government’s ability to police insider trading of digital assets that are not securities.

Our alert explores the outcomes of the decision and implications for digital asset stakeholders.

Background

Chastain, as head of product at OpenSea, was responsible for selecting NFTs to be featured on the platform’s homepage, a designation that typically increased the value of the selected NFTs. Chastain purchased NFTs before featuring them on the homepage, then later sold them for approximately USD57,000 in total profit. When his trading activity came to light, Chastain was asked to resign in September 2021. He was then indicted in May 2022 and convicted by a jury in the Southern District of New York on counts of wire fraud and money laundering, with the government alleging that he misappropriated OpenSea’s confidential business information for personal gain.

Jury instructions

Wire fraud requires proof of a scheme to obtain “money or property” through fraud. The district court instructed the jury that confidential business information (such as OpenSea’s NFT features) could constitute “property” under the wire fraud statute even if it lacked commercial value to OpenSea, and that a scheme to defraud could be found if Chastain’s conduct “departed from traditional notions of fundamental honesty and fair play.” The jury convicted Chastain on both counts, and sentenced him to three months’ imprisonment and three years’ supervised release.

Second Circuit’s decision

On appeal, Chastain argued that the jury instructions were erroneous because they permitted a conviction based on the misappropriation of information unconnected to a traditional property interest, and that the government should have been required to prove the information had commercial value to OpenSea. The Second Circuit agreed, holding that confidential business information must have commercial value to the company to qualify as “property” under the wire fraud statute. The court emphasized that the wire fraud statute protects only traditional property rights and that not all confidential information qualifies – only that which has commercial value or economic significance to the holder. The court reasoned that the trial court’s logic could criminalize “an almost limitless variety of deceptive actions traditionally left to state contract and tort law.” Accordingly, the district court’s jury instructions, which permitted conviction based on unethical conduct rather than misappropriation of property, were erroneous.

The court concluded that these instructional errors were not harmless, as evidence suggested the featured NFT information may have been tangential to OpenSea’s business and lacked commercial value. The court ultimately remanded for further proceedings.

Dissent

Dissenting on the key issue, Judge José A. Cabranes insisted that the court’s decision conflicts with Supreme Court and Second Circuit precedent establishing that a company’s exclusive right to confidential business information is sufficient to constitute “property” under the wire fraud statute, regardless of a separate showing of commercial value.

Key takeaways

The decision has potentially broad implications in the context of digital assets. While securities laws and regulations prohibit insider trading, the extent to which NFT collectibles constitute securities remains an open question – with the industry taking the position that they do not.

Before Chastain, prosecutors rarely used federal criminal laws – like the wire fraud statute – to police insider trading generally, let alone insider trading of nonsecurities assets. Many perceived Chastain’s indictment as an indication that the Department of Justice (DOJ) sought to expand its criminal jurisdiction in this area. Adding to this perception, DOJ would subsequently use a related theory to obtain a guilty plea from a digital asset exchange employee who used company information to trade cryptocurrencies before they were listed on the exchange. As a result, many NFT platforms and other digital asset issuers developed insider trading policies to mitigate risk.

While the Second Circuit’s decision does not preclude using the wire fraud statute to prosecute insider trading, prosecutors may now need to prove, beyond a reasonable doubt, that confidential business information had “commercial value.” The Second Circuit’s opinion may therefore reorient how digital asset issuers and trading platforms think about these policies. Insider trading has historically been a priority for the federal government, and sound internal governance remains to be key. However, the court’s decision may be particularly interesting for digital asset companies concerned with DOJ enforcement.

In April 2025, Deputy Attorney General Todd Blanche issued a memorandum stating, “The Department of Justice is not a digital assets regulator.” The memo disbanded DOJ’s National Cryptocurrency Enforcement Team and announced that DOJ would “no longer pursue litigation or enforcement actions that have the effect of superimposing regulatory frameworks on digital assets, while President Trump’s actual regulators do this work outside the punitive criminal justice framework.”

The court’s decision came the same day Securities and Exchange Commission (SEC) Chairman Paul Atkins announced “Project Crypto,” a plan to liberalize rules governing digital assets in line with a White House directive to federal agencies to use their exemptive authority. Atkins announced his goal to welcome “crypto asset distributions back to America.” Chairman Atkins’ announcement is thus the latest indication that “actual regulators,” such as the SEC, are also rethinking their approaches to digital assets.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.

© DLA Piper

Written by:

DLA Piper
Contact
more
less

PUBLISH YOUR CONTENT ON JD SUPRA NOW

  • Increased visibility
  • Actionable analytics
  • Ongoing guidance

DLA Piper on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide