Federal Appeals Court Tosses First NFT Insider Trading Case

A federal appeals court has overturned the conviction of former OpenSea product manager Nathaniel Chastain, who was found guilty of wire fraud and money laundering for using insider information to trade non-fungible tokens (NFTs), in what prosecutors are calling first insider trading case involving NFTs.

Chastain was convicted in May 2023 and sentenced to three months in prison.

As we reported back in 2022 , Chastain was the head of product at OpenSea and was tasked with deciding which NFTs were to be featured on the site. Featured NFTs often appreciated in price and Chastain would purchase NFTs before they were featured and sell them afterwards. He made about $57,000 from buying and selling 15 NFTs, according to court documents .

The 2nd U.S. Circuit Court of Appeals in Manhattan agreed, in a 2-1 split decision, with Chastain that erroneous jury instructions could have led to his conviction merely for unethical behavior, regardless of whether the misused information had any real value to his employer.

Circuit Judge Steven Menashi said the "district court erred by instructing the jury that it could find Chastain guilty of wire fraud even if it found that he misappropriated information that lacked commercial value to OpenSea" and "further erred by instructing the jury that it could find Chastain guilty if it found his conduct to have departed from “fundamental honesty and fair play in the general and business life of society.”"

Menashi said if that were the test, "almost any deceptive act could be criminal."

The appeals court returned the case to U.S. District Judge Jesse Furman in Manhattan. It is not clear whether prosecutors plan to retry Chastain.