Second Circuit Vacates Fraud Conviction In First Crypto “Insider Trading” Case – Fin Tech

In United States v. Chastain, No.
23-7038, 2025 WL 2165839 (2d Cir. July 31, 2025), the United States
Court of Appeals for the Second Circuit vacated wire fraud and
money laundering convictions in what the government described as
its first crypto insider trading case. The case involves a former
employee of OpenSea, an online non-fungible token (“NFT”)
marketplace, who allegedly used confidential information about
which NFTs would be featured on OpenSea’s homepage to purchase
those NFTs before they were promoted, then sold them after a
post-promotion price bump for a profit. At trial, the United States
District Court for the Southern District of New York instructed
the jury that property protected by the wire fraud statute need not
have commercial value, and the defendant could be convicted of wire
fraud by failing to abide by societal mores.

On appeal, the Second Circuit held that both instructions were
prejudicial error that warranted a new trial. The Second
Circuit’s decision follows the United States
Supreme Court‘s recent lead in curtailing the reach of the
federal wire fraud statute. The decision also has broader
implications for the crypto industry, as it limits the situations
in which prosecutors can sidestep the debate of whether a digital
asset is a security or commodity by pursuing wire fraud in lieu of
securities or commodities fraud charges.

Nathaniel Chastain worked as a product manager for the NFT
marketplace giant, OpenSea. In that role, Chastain was responsible
for deciding which NFTs to feature on OpenSea’s website —
an action that typically caused the showcased NFT to increase in
value. The government alleged that Chastain purchased fifteen NFTs
that he then featured on OpenSea’s website and sold after
prices rose to pocket $57,000 in profits. This, prosecutors argued,
amounted to “insider trading” and wire fraud under 18
U.S.C. § 1343.

To be found guilty of wire fraud, a defendant must (1) devise or
intend to devise a scheme (2) to obtain money or property (3) by
means of false or fraudulent pretenses, representations, or
promises. Kousisis v. United States, 145 S. Ct.
1382, 1391 (2025). The phrase “money or property”
encompasses “property rights” that are both tangible and
intangible. Carpenter v. United States, 484 U.S.
19, 25 (1987). However, the wire fraud statute reaches only
traditional property interests, which are those that had “long
been recognized as property when the wire fraud statute was
enacted.” Ciminelli v. United States, 598 U.S.
306, 314 (2023).

Chastain was convicted of wire fraud and money laundering in
connection with his NFT transactions and purported concealment of
the proceeds. On appeal, the Second Circuit addressed whether
confidential business information qualifies as a traditional
property interest even if it lacks commercial value to the
business, as the jury had been instructed. The Court held that
property must be shown to have commercial value to satisfy the
federal wire fraud statute. The majority reviewed decisions
protecting a newspaper’s pre-publication information and a law
firm’s confidential client information, finding that the
misappropriated information in those cases was the entities’
“stock-in-trade” and central to their business model. By
contrast, OpenSea did not charge for its NFT feature information
and evidence submitted by the government suggested that the
information was merely tangential to OpenSea’s business. Since
the jury could have ignored such evidence under the district
court’s erroneous instruction, the Second Circuit held that
Chastain was prejudiced by the instruction and entitled to a new
trial.

The Court also considered if the instruction that the jury could
convict if Chastain “conducted himself in a manner that
departed from traditional notions of fundamental honesty and fair
play in the general and business life of society” was
prejudicial error. In concluding that it was, the court held that
the legal standard was incorrect and allowed the jury to improperly
convict based on the government’s “view of integrity”
in business conduct rather than the misappropriation of
“property rights only.” It added that under such a
standard, “‘almost any deceptive act could be
criminal'” (quoting Ciminelli).

Chastain is the latest decision to impose limitations
on prosecutors’ use of the federal wire fraud statute after two
recent Supreme Court decisions set the stage. In Kelly v. United States, 590 U.S. 391
(2020), the Supreme Court held that, for purposes of the federal
wire fraud statute, the subject property must be an “object of
the fraud,” not an “incidental byproduct of the
scheme.” In Ciminelli, the Supreme Court rejected the
Second Circuit’s longstanding “right to control”
theory of fraud, which had enabled prosecutors to argue that a
right to valuable economic information needed to make discretionary
economic decisions was property protected by 18 U.S.C. § 1343.
Collectively, these decisions represent a return to core
principles, requiring that for fraud to be actionable it must
entail the intentional deprivation of a victim’s valuable
property.

With NFTs taking center stage in Chastain, the decision
matters for the crypto industry, too. Some experts hypothesized
that prosecutors would turn to the federal wire fraud statute to
crack down on insider trading in the space since United States
Department of Justice policy now directs prosecutors not to pursue
securities or commodities fraud charges that would require
litigating whether the digital asset is a security or a commodity
and the Securities
and Exchange Commission embarks on its ambitious “Project Crypto” to develop a new
regulatory framework. Chastain serves as another check on
prosecutorial creativity when using the federal wire fraud statute
to police crypto.

Notably, the decision in Chastain was not unanimous.
The dissenting judge read the case law differently and called the
majority’s decision a “novel addition to our law”
that “ignores unambiguous and binding Second Circuit and
Supreme Court precedents which hold that confidential business
information, standing alone and without any separate showing of
commercial value, is properly considered property for purposes of
the wire fraud statute.” Nonetheless, the majority decision in
Chastain means that prosecutors in the influential Second
Circuit will have to navigate yet another limitation on their go-to
fraud fighting statute.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.