US appeals court overturns first NFT insider trading conviction
The 2nd U.S. Circuit Court of Appeals in Manhattan agreed with Nathaniel Chastain that erroneous jury instructions could have led to his being convicted merely for acting unethically, and without undermining a property interest belonging to OpenSea.
A spokesman for the U.S. Attorney's office in Manhattan did not immediately respond to requests for comment.
Non-fungible tokens, or NFTs, are unique digital assets, reflecting ownership of files such as artwork, other images, videos and text, and recorded on a blockchain.
Chastain had been appealing his May 2023 wire fraud and money laundering conviction and three-month prison sentence.
Prosecutors said he stole OpenSea's confidential information about which NFTs would be featured on its home page, secretly bought those NFTs, and sold them for a profit after they were featured and the price went up.
Chastain made about $57,000 from buying and selling 15 NFTs, court papers show. Charges were unveiled in June 2022, after the NFT market had grown to about $40 billion annually.
Circuit Judge Steven Menashi said the trial judge erred by instructing jurors that a conviction did not require proof Chastain stole information that had commercial value to OpenSea, and a fraud scheme may involve conduct that was merely dishonest.
"If the wire fraud statute criminalized conduct that merely departed from traditional notions of fundamental honesty and fair play, almost any deceptive act could be criminal," Menashi added.
Alexandra Shapiro and David Miller, two of Chastain's lawyers, in separate statements said they were pleased. "This case was a miscarriage of justice," they said.
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