Federal Appeals Court Overturns First NFT Insider Trading Conviction

A federal appeals court has reversed the conviction of Nathaniel Chastain, a former OpenSea product manager, in a landmark NFT insider trading case. The 2nd U.S. Circuit Court of Appeals ruled that flawed jury instructions may have led to an unjust verdict, potentially conflating unethical behavior with criminal fraud.

Chastain had been sentenced to three months in prison in May 2023 for exploiting his position at OpenSea to profit from NFT trades. As head of product, he purchased NFTs before they were featured on the platform's homepage—a placement known to boost value—then sold them post-feature, netting $57,000 across 15 transactions.

The court's 2-1 decision emphasized prosecutors failed to prove the information Chastain misused held tangible value for OpenSea. "The district court erred by instructing the jury it could convict based solely on breaches of fundamental honesty," wrote Circuit Judge Steven Menashi, drawing a critical distinction between ethical lapses and wire fraud.