Securities Regulation Daily Wrap Up, ENFORCEMENT—2d Cir.: Second Circuit overturns wire fraud conviction of NFT marketplace employee over jury instruction errors, (Aug 1, 2025)

By Elena Eyber, J.D.

The Second Circuit vacated wire fraud and money laundering convictions of a former product manager at the largest NFT marketplace, ruling that the jury was improperly instructed on the definition of property.

The U.S. Court of Appeals for the Second Circuit vacated the conviction of Nathaniel Chastain, a former OpenSea employee found guilty of wire fraud and money laundering for trading non-fungible tokens (NFTs) using insider information. The Second Circuit found that the district court improperly instructed the jury that Chastain could be convicted for misappropriating information even if it lacked commercial value or was not tied to a traditional property interest. This error, the Second Circuit held, may have led the jury to convict Chastain based on unethical conduct rather than actual fraud involving property, requiring the conviction to be overturned and the case remanded (U.S. v. Chastain, No. 23-7038 (2d Cir. July 31, 2025)).

Trading scheme and district court. Chastain’s role at OpenSea involved selecting NFTs to be featured on the platform’s homepage, a status that typically increased their value. Chastain purchased NFTs before they were featured and sold them afterward, profiting approximately $57,000. The district court told jurors they could find Chastain guilty if his conduct violated broad notions of “honesty and fair play,” even absent the appropriation of confidential commercial information. The Second Circuit found that this standard did not align with the legal definition of fraud under 18 U.S.C. §1343, which requires misappropriation of property with commercial value.

Evidence challenges rejected. Chastain also challenged several evidentiary rulings, arguing that the district court unfairly excluded testimony about whether other OpenSea employees viewed the featured NFT information as confidential and other relevant company practices. The Second Circuit rejected these arguments, holding that the district court did not abuse its discretion in these evidentiary exclusions. Nonetheless, the instructional error alone was sufficient to warrant vacating the conviction.

Judge Cabranes partial dissent. Judge José A. Cabranes partially dissented, defending the jury instructions as legally sound and aligned with Supreme Court precedent, particularly the Carpenter decision. Judge Cabranes argued that confidential business information qualifies as property under the wire fraud statute even without proof of commercial value and that the jury instructions, taken as a whole, correctly conveyed this principle. Judge Cabranes would have affirmed Chastain’s conviction in full.

The case is No. 23-7038.

Judge: Per curiam.

Attorneys: Thomas Somerset Burnett, United States Attorney's Office for the Southern District of New York, for U.S. Alexandra A.E. Shapiro (Shapiro Arato Bach LLP) for Nathaniel Chastain.

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