Key Takeaways
- The appeals court determined that Chastain’s conviction was undermined by errors in the instructions provided to the jury.
- No date has been set for any further proceedings in the case
A federal appeals court has negated the conviction of Nathaniel Chastain, the former product manager at OpenSea, effectively nullifying the first insider trading prosecution involving digital assets in the United States. The ruling was made by the 2nd U.S. Circuit Court of Appeals in Manhattan on Thursday.
Chastain was accused of leveraging confidential knowledge from his role at OpenSea, the world’s largest marketplace for NFTs, to secretly buy tokens before they were promoted on the platform’s homepage.
Prosecutors alleged that he later resold these NFTs at substantial profits, in some cases earning as much as five times his initial purchase price. Federal authorities charged him with wire fraud and money laundering in 2022, describing the matter as the first insider trading case in the digital asset sector.
According to court records, Chastain’s alleged scheme took place while he was serving as the platform’s product manager. He was arrested in June 2022, convicted by a jury in May 2023, and sentenced in August 2023 to three months in federal prison, along with three years of supervised release.
At the time of his sentencing, the U.S. Department of Justice characterized the case as a landmark effort to extend insider trading enforcement into cryptocurrency markets.
The appeals court, however, determined that Chastain’s conviction was undermined by errors in the instructions provided to the jury. The three-judge panel found that jurors may have been permitted to convict him for conduct that was unethical or in violation of company policy, rather than conduct that met the legal definition of criminal fraud.
Chastain’s attorneys had argued that the information he allegedly misused, which was on the knowledge of which NFTs would appear on OpenSea’s homepage—did not constitute property of significant value to his employer under existing law.
Federal prosecutors have not yet indicated whether they intend to seek a retrial or pursue alternative charges. For now, the ruling eliminates the first criminal conviction of its kind in the United States and may have potential ramifications on how future cases in the crypto sector are pursued.
No date has been set for any further proceedings in the case, leaving both the Department of Justice and the crypto industry awaiting the government’s next steps in what has been a closely watched test of U.S. fraud laws in on-chain markets.
