US appeals court overturns OpenSea product manager Nathanial Chastain's wire fraud and money laundering conviction
Quick Take
- The judges said they agreed in part with Nathanial Chastain’s appeal.
- Chastain was charged in June 2022 after he allegedly used confidential information about what NFTs were going to be featured on OpenSea’s homepage to make money for himself.
A U.S. appeals court overturned former OpenSea employee Nathanial Chastain's fraud and money laundering convictions, citing discrepancies around whether the NFT information involved was property.
In an order filed on Thursday in the U.S. Court of Appeals for the Second Circuit, the judges said they agreed in part with Chastain's appeal.
"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. He maintains that this error affected the jury’s decision," they said. "We agree."
Chastain was charged in June 2022 after he allegedly used confidential information about what NFTs were going to be featured on OpenSea’s homepage to make money for himself. Prosecutors said he secretly bought dozens of NFTs shortly before they were featured on the homepage and then sold them at profits of two to five times the original price.
Chastain, former head of product for NFT marketplace OpenSea, was convicted in May 2023 in what prosecutors called the "first ever digital asset insider trading scheme" after being indicted on wire fraud and money laundering charges. Chastain was later sentenced to three months in prison in August 2023 and three years of supervised release.
"Under these circumstances, 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," the judges said.
The judges also noted that Chastain accused OpenSea founder Devin Finzer of buying MATIC before OpenSea announced it would integrate the blockchain it is affiliated with onto the NFT platform.
"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,'" according to the order on Thursday.
However, the district court prevented Chastain from asking Finzer about his trading activity as it was "irrelevant, unfair and prejudicial" and that there was no evidence that he knew about Finzer's trading when Chastain himself was trading featured NFTs, according to the order. The testimony "served only to disparage Finzer," it said.
The judges also noted Chastain's suggestion that Finzer used "'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," but said that he did not give evidence to that statement.
Editor's note: The story has been updated to include additional details and clarify that Chastain's testimony was ruled irrelevant and misleading.
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