U.S. Appeals Court Overturns NFT Insider Trading Conviction Citing Legal Ambiguity

A U.S. federal appeals court has overturned the conviction of Nathaniel Chastain, a former product manager at OpenSea, who was found guilty in a 2023 trial for wire fraud and money laundering related to NFT trading using nonpublic information [1]. The Second Circuit Court of Appeals ruled that the jury was improperly instructed, potentially leading to a conviction based on unethical behavior rather than a clear violation of property rights under federal fraud law [3]. Chastain’s defense argued that the information he used—related to which NFT collections would be featured on OpenSea’s homepage—did not constitute “property” under the law [4]. The court agreed, stating that the district court’s instructions lacked sufficient legal grounding [6].

Chastain was originally charged in 2022 for allegedly exploiting insider knowledge to buy NFTs before they were highlighted on the platform and then selling them at a profit. He was sentenced to three months in prison and a $50,000 fine [5]. However, the appeals court’s 2–1 decision highlighted the legal ambiguity around the classification of NFTs as property and the difficulty in applying traditional fraud laws to digital assets [7]. The case was the first of its kind to attempt to apply securities fraud principles to NFT trading and had drawn significant attention from regulators and legal experts [5].

At the time of the trial, OpenSea was one of the largest NFT marketplaces, with monthly trading volumes reaching nearly $5 billion. Although activity has since declined, the platform has still generated over $1 billion in cumulative revenue [9]. The overturned conviction raises broader questions about the enforceability of insider trading laws in the context of NFTs, which remain a relatively new and rapidly evolving asset class [8].

The U.S. Department of Justice has not yet announced whether it will pursue a retrial. In its appeal, the government argued that Chastain’s actions should be treated under the same legal framework as traditional stock market insider trading, a stance the court found lacking in legal support [10]. The ruling underscores the challenges regulators face in adapting existing financial laws to digital assets, which often function outside conventional market structures [11].

Separately, Binance recently suspended a member of its wallet division following allegations of insider trading tied to a token launch [1]. The unnamed employee was accused of using confidential information from a previous role at BNB Chain to front-run trades in a token before its public announcement. The individual reportedly used multiple linked wallets to purchase large amounts of the token and then sold part of the holdings immediately after the launch to secure profits [3].

The incident has drawn speculation about the identity of the employee, with online accounts linking the trades to Freddie Ng, a former operations manager at BNB Chain who recently joined Binance Wallet. The trades allegedly netted over $82,000 in profit [4]. Binance confirmed the suspension and stated the employee could face further disciplinary action, though no specific jurisdiction or legal process has been disclosed [5].

The cases involving both Chastain and the Binance employee highlight the growing scrutiny of insider trading practices in the digital asset space. As the sector matures, courts and regulators continue to navigate how to apply traditional financial regulations to emerging technologies and decentralized markets [7].

Source:

[1] https://www.reuters.com/legal/government/us-appeals-court-overturns-first-nft-insider-trading-conviction-2025-07-31/

[3] https://www.rootdata.com/news/145004

[4] https://www.ainvest.com/news/appeals-court-overturns-opensea-executive-nft-fraud-conviction-2508/

[5] https://www.usnews.com/news/us/articles/2025-07-31/us-appeals-court-overturns-ex-opensea-product-managers-nft-insider-trading-conviction

[6] https://www.law360.com/articles/2371740/2nd-circ-vacates-opensea-crypto-insider-trading-conviction

[7] https://www.cryptopolitan.com/us-overturns-nft-conviction-opensea-exec/

[8] https://www.bankless.com/read/u-s-appeals-court-overturns-opensea-insider-trading-conviction

[9] https://www.reuters.com/legal/government/us-appeals-court-overturns-ex-opensea-product-managers-nft-insider-trading-2025-07-31/