U.S. court overturns NFT insider trading conviction of former OpenSea exec

A U.S. federal court has reversed the insider trading conviction of Nathaniel Chastain, the former product manager at OpenSea, following a decision Thursday by the 2nd U.S. Circuit Court of Appeals in Manhattan.

The court said Chastain’s guilty verdict for wire fraud and money laundering was built on flawed instructions given to the jury that allowed them to punish him for being unethical, not necessarily criminal.

Nathaniel was accused of buying dozens of NFTs using inside knowledge of which collections would be promoted on OpenSea’s homepage. He then resold them for up to five times the original price.

The alleged trades happened while he was still working as the platform’s product lead. He was arrested in June 2022, convicted in May 2023, and sentenced to three months in prison plus three years of supervised release by August 2023. Federal prosecutors had labeled the case the first crypto insider trading prosecution in the U.S.

Court says jury got “wrong definition” of fraud

The appellate court said the trial court allowed jurors to convict Nathaniel for misusing OpenSea’s internal info even if what he misused wasn’t tied to traditional property. The opinion from the judges said, “Chastain argues that the district court erred by instructing the jury that it could find him guilty of defrauding OpenSea of its property if he misappropriated an intangible interest unconnected to traditional property rights… We agree.”

The court ruled that fraud must involve the misuse of a real property interest, not just unprofessional behavior. “Under these circumstances,” the judges continued, “we cannot say that the jury would have reached the same verdict if it had been properly instructed that fraud requires the appropriation of a property interest rather than unprofessional business conduct.”

Nathaniel’s defense also pointed to Devin Finzer, the cofounder of OpenSea, accusing him of using company info for personal benefit too. Specifically, Nathaniel said Devin bought MATIC tokens before OpenSea made public its plan to integrate with the Polygon blockchain. The filing stated:

“Chastain suggests that evidence that Finzer ‘us[ed] similar company information for personal benefit’ would show that the cofounder ‘didn’t believe company policy precluded officers or employees from using similar company information for personal benefit.’”

The court didn’t decide on whether Devin’s actions broke any rules, but acknowledged the claim as part of the overall defense — used to show OpenSea may not have enforced its own policies or considered the behavior unusual at the time.

There’s no word yet on whether prosecutors plan to retry the case, but as of now, Nathaniel’s conviction no longer stands. The ruling raises new questions about how far U.S. law can reach when it comes to crypto-related misconduct, especially inside a fast-moving platform like OpenSea.

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