Breaking: Federal Appeals Court Dismisses Landmark NFT Insider Trading Case—What’s Next for Crypto Regulation?

A federal appeals court just threw out the first-ever NFT insider trading case—sending shockwaves through crypto and traditional finance circles. Here’s why it matters.

The Ruling That Rattled Web3

Judges slammed the SEC’s argument that NFTs qualify as securities, dealing a blow to regulators trying to stretch decades-old laws to cover blockchain assets. Legal experts call it a ‘watershed moment’ for digital ownership.

TradFi’s Worst Nightmare

Wall Street’s compliance departments are scrambling. If insider trading laws don’t stick to NFTs, what stops a wave of ‘alpha leaks’ in decentralized markets? (Besides ethics—but since when did that stop anyone?)

What’s Next?

The decision could force Congress to finally draft crypto-specific legislation—or let the Wild West ride on. Either way, pack your bags: we’re in for a volatile regulatory ride.

A federal appeals court has overturned the conviction of former OpenSea product manager Nathaniel Chastain, who was found guilty of wire fraud and money laundering for using insider information to trade non-fungible tokens (NFTs), in what prosecutors are calling first insider trading case involving NFTs.

Chastain was convicted in May 2023 and sentenced to three months in prison.

As we reported back in 2022, Chastain was the head of product at OpenSea and was tasked with deciding which NFTs were to be featured on the site. Featured NFTs often appreciated in price and Chastain WOULD purchase NFTs before they were featured and sell them afterwards. He made about $57,000 from buying and selling 15 NFTs, according to court documents.

The 2nd U.S. Circuit Court of Appeals in Manhattan agreed, in a 2-1 split decision, with Chastain that erroneous jury instructions could have led to his conviction merely for unethical behavior, regardless of whether the misused information had any real value to his employer.

Circuit Judge Steven Menashi said the "district court erred by instructing the jury that it could find Chastain guilty of wire fraud even if it found that he misappropriated information that lacked commercial value to OpenSea" and "further erred by instructing the jury that it could find Chastain guilty if it found his conduct to have departed from “fundamental honesty and fair play in the general and business life of society.”"

Menashi said if that were the test, "almost any deceptive act could be criminal."

The appeals court returned the case to U.S. District Judge Jesse Furman in Manhattan. It is not clear whether prosecutors plan to retry Chastain.