Second Circuit Vacates NFT “Insider Trading” Conviction in United States v. Chastain—Clarifies Property Rights in Confidential Information Under Wire Fraud Statute

On July 31, 2025, the US Court of Appeals for the Second Circuit vacated the conviction of Nathaniel Chastain, a former OpenSea executive, for wire fraud and money laundering in connection with an alleged scheme to use confidential information to trade non-fungible tokens (NFTs). The case had been hailed as  the first-ever insider trading prosecution involving digital assets. The Second Circuit held that the jury instructions in the case were erroneous because they allowed the jury to find the defendant guilty based on the misappropriation of confidential information that lacked commercial value to Chastain’s employer, OpenSea. The decision provides important guidance on the definition of “property” under the federal wire fraud statute as applied to confidential business information, particularly in the context of digital assets and emerging technologies. It is also notable because it comes on the heels of pronouncements by the Trump Administration regarding how the federal government will police digital assets.

Background

Nathaniel Chastain served as the head of product at OpenSea, a leading online marketplace for non-fungible tokens (NFTs). In this role, Chastain was responsible for selecting which NFTs would be featured on OpenSea’s homepage—a designation that typically led to a significant increase in the value of the selected NFTs. Chastain allegedly used this non-public information to purchase NFTs before they were featured and then sold them for a profit after they appeared on the homepage, earning approximately $57,000. 

OpenSea did not itself buy or sell NFTs, nor did it receive payments from NFT creators for featuring their tokens. Instead, the company collected a standard transaction fee for trades conducted on its platform. The process for selecting featured NFTs was not highly secretive; OpenSea solicited suggestions from both employees and the public, and the company’s co-founders testified that the primary goal of featuring NFTs was to make the website more dynamic and engaging for users, rather than to generate direct commercial benefit. 

Chastain’s trading activity came to light after OpenSea users noticed suspicious transactions linked to his accounts and posted about them on social media. Following public scrutiny, OpenSea asked Chastain to resign. The government subsequently charged him with wire fraud and money laundering, alleging that he had misappropriated OpenSea’s confidential business information for personal gain. After a jury trial, Chastain was convicted on both counts—wire fraud and money laundering—and was sentenced to three months’ imprisonment and three years of supervised release.

The Decision

The Second Circuit’s analysis focused on whether the confidential information at issue—the identity of NFTs to be featured—constituted “property” under the federal wire fraud statute, 18 U.S.C. § 1343. Wire fraud prohibits obtaining property through the use of false or fraudulent means. The district court had instructed the jury that confidential business information could be considered property even if it lacked commercial value to the company, and that a conviction could be based on conduct that merely departed from “traditional notions of fundamental honesty and fair play.” 

The appellate court’s majority rejected this approach, holding that confidential business information must have commercial value to the employer to qualify as property under the wire fraud statute. The court emphasized that the statute protects only “traditional” property interests, whether tangible or intangible, and that not all confidential information meets this standard. Citing Supreme Court precedent, the Second Circuit explained that information is protected as property when it is akin to a trade secret or otherwise has economic value to the business, such that its misappropriation would cause commercial harm. 

The court found that the evidence presented at trial was equivocal as to whether the featured NFT information had commercial value to OpenSea. Witness testimony indicated that the selection of featured NFTs was tangential to OpenSea’s core business and that the company did not monetize this information. While there was some suggestion that disclosure of the information could harm OpenSea’s reputation, the Second Circuit held that abstract reputational harm, without a direct impact on economic interests, is insufficient to establish a property right under the wire fraud statute.

Additionally, the majority criticized the jury instruction that allowed conviction based on conduct that merely departed from “fundamental honesty and fair play.” The court noted that the wire fraud statute does not criminalize unethical business conduct in the absence of an invasion of a traditional property interest. The erroneous instructions, the court concluded, could have led the jury to convict Chastain based on a finding of unethical behavior rather than actual fraud involving property rights. 

Because the court could not conclude that the jury would have reached the same verdict if properly instructed (i.e., the district court’s instructions were not harmless error), it vacated Chastain’s convictions for both wire fraud and money laundering and remanded the case for further proceedings.

Judge José A. Cabranes dissented from the majority’s opinion. He argued that Supreme Court and Second Circuit precedent establish that confidential business information is “property” under the wire fraud statute if the company has a right to its exclusive use, regardless of commercial value.

Takeaways

The decision has far-reaching consequences even beyond the digital assets space. The Second Circuit has narrowed the definition of “property” under the federal wire fraud statute. To sustain a wire fraud conviction, it is no longer enough to show the misappropriation of confidential information, the government must prove that the misappropriated information had actual commercial value to the platform or company. The ruling is also potentially quite consequential in the digital assets space, as the case involved trading digital assets (e.g., NFTs) based on non-public information, a scenario often analogized to insider trading in securities markets. Because most NFTs and other digital assets have not been definitively classified as securities, prosecutors have looked to wire fraud statutes as an alternative enforcement tool to securities fraud statutes, especially for alleged insider trading.

The holding raises the bar for prosecution and will likely restrict the Department of Justice’s ability to pursue insider trading-type cases involving digital assets that do not qualify as securities. Although, in light of Deputy Attorney General Todd Blanche’s April 7, 2025 memorandum on DOJ’s approach to digital asset prosecutions, “Ending Policing by Regulation,” the Second Circuit’s decision may actually align with DOJ’s current view of the industry. In particular, in the memo, DAG Blanche noted that DOJ’s digital asset prosecutions will focus on “prosecuting individuals who victimize digital asset investors, or those who use digital assets in furtherance of criminal offenses such as terrorism, narcotics trafficking, organized crime, hacking, and cartel and gang financing.” Novel theories of prosecution that sound in regulatory violations are not likely to find favor at DOJ.

The Chastain decision further reflects a significant development in the ongoing judicial trend of narrowing the scope of federal wire fraud statute. Recent Supreme Court and appellate decisions, such as Ciminelli v. United States and United States v. Abdelaziz, have emphasized that the wire fraud statute protects only traditional property rights, rejecting expansive theories that would criminalize a broad range of conduct based on intangible interests or abstract notions of honesty. In Chastain, the Second Circuit clarified that confidential business information must have commercial value to the holder to qualify as “property” under the wire fraud statute, reinforcing the principle that not all confidential or non-public information is protected by federal fraud laws. 

The decision also provides critical clarification on the limits of federal wire fraud liability in cases involving confidential business information. Companies should take note of the court’s emphasis on the economic significance of confidential information. Internal policies and confidentiality agreements remain important for governance and risk mitigation, but their existence alone does not transform all non-public information into “property” for purposes of federal fraud statutes. Companies should carefully assess which types of information have genuine commercial value and ensure that their compliance programs and employee training reflect this distinction. For digital asset platforms, this may mean revisiting insider trading policies to focus on information that, if misused, could cause tangible economic harm to the business or its users.