Former OpenSea Exec Argues NFT Insider Trading Conviction Violated Law

Nathaniel Chastain, the ex-OpenSea executive who was convicted last May of fraud and money laundering after profiting off several NFT collections he chose to highlight on the marketplace’s homepage, has asked a federal appeals court to overturn his conviction on the grounds that it improperly designated information about NFTs as “property.”

In a brief filed this week in the United States Court of Appeals for the Second Circuit, Chastain’s attorneys attempted to make the argument that the insider information Chastain used to his advantage in trading NFTs—namely, which NFT collections he planned to feature on OpenSea’s homepage—was not of particular value to OpenSea, and therefore not the company’s property.

“The sole prosecution theory was that Chastain defrauded OpenSea by using its information for personal benefit,” attorneys for Chastain argued in the brief. “Thus, to sustain a wire fraud conviction, the government had to prove that the purported ‘object’ of his scheme—the information at issue—was OpenSea’s ‘property.’”

In his time at OpenSea, Chastain routinely bought up NFTs that he would then feature on OpenSea’s homepage; once the collections sold out due to that exposure, he would then sell the NFTs to collect a profit amid the hype. All in all, Chastain netted over $50,000 by employing such schemes.

Chastain’s attorneys do not dispute that the executive engaged in such activity, nor do they claim it to be an admirable use of the information he had at his disposal. 

“There was evidence suggesting Chastain may have believed his conduct was unethical or a conflict of interest,” Chastain’s attorneys wrote. 

But—and critically, say the attorneys—the information that Chastain used to enrich himself was not “property” of OpenSea, in the sense that Chastain’s manipulation of that information did not come at a cost to the company. That distinction matters because, according to them, a 2023 Supreme Court decision clarified that federal wire fraud laws only prohibit schemes designed to obtain things “long… recognized as property.”

Regardless, after on-chain sleuths discovered and revealed Chastain’s conduct back in 2021, OpenSea leadership immediately terminated the executive, condemning his behavior and clarifying they were not previously privy to it. 

In August, Chastain received a three-month prison sentence, three months’ house arrest, three years of probation, and a $50,000 fine. Prosecutors lauded the result as the first-ever digital asset insider trading scheme. 

Chastain’s attorneys took issue with that superlative as well in this week’s filing, claiming that the case’s original judge found the case to be “an odd case, where the victim doesn’t feel victimized,” and doubted charges would have been filed had it not involved the “sexy, new arena” of NFTs.

Edited by Andrew Hayward