Appeals Court Rules NFT Trading Case Misjudged, Tosses Landmark OpenSea Conviction

Key insights:

• Appeals court finds OpenSea insider trading case lacked proof of stolen property interest
• Nathaniel Chastain’s three-month prison sentence is voided following a 2-1 ruling
• Case now returns to Manhattan federal court for further review

A U.S. appeals court overturned the wire fraud conviction of Nathaniel Chastain, a former OpenSea executive, citing flawed jury instructions and legal missteps. The 2nd U.S. Circuit Court of Appeals ruled 2-1 that the original trial failed to prove that Chastain stole information that qualified as OpenSea’s property. 

Judge Steven Menashi wrote, “Almost any deceptive act could be criminal if the instructions had stood,” undermining the legal threshold for fraud.

Chastain was sentenced to three months in prison in May 2023 for allegedly making $57,000 by buying and selling 15 NFTs he knew would be promoted on OpenSea’s homepage. 

Prosecutors claimed the homepage placements were confidential and that his use of this knowledge for profit constituted wire fraud. The Department of Justice had called it the first-ever “digital asset insider trading scheme” when charges were unveiled in June 2022.

However, the court concluded that “the government failed to show the information had independent commercial value to OpenSea,” adding that “jury instructions wrongly allowed conviction based on unethical conduct alone” (Case No. 23-7038). 

The reversal weakens the precedent prosecutors had hoped to establish in digital asset enforcement.

OpenSea CEO’s Excluded Testimony Draws Scrutiny as Case Resumes

The court also criticized the exclusion of testimony involving OpenSea CEO Devin Finzer, who allegedly purchased Polygon (MATIC) before a public partnership with the network. 

According to court records, Finzer signed a confidentiality agreement yet bought tokens ahead of the announcement. “If Finzer didn’t treat the information as confidential, then OpenSea had no property interest in it,” the court noted.

Legal analysts say the ruling could reshape how insider trading laws apply to crypto assets. Alexandra Shapiro, one of Chastain’s attorneys, said the case represented a “miscarriage of justice” and called the decision a correction of that error. 

The case now returns to U.S. District Judge Jesse Furman in Manhattan for further proceedings. With the NFT market having peaked at $40 billion in 2022, the ruling signals caution for future prosecutions.

Whether Chastain will face new charges remains uncertain, as the U.S. Attorney’s Office has not announced its next steps.