U.S. Appeals Court Overturns First 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 NFT marketplace OpenSea, for wire fraud and money laundering, raising important legal questions about insider trading in the digital asset space [1]. The 2nd U.S. Circuit Court of Appeals ruled on Thursday that the lower court had given misleading jury instructions, which may have led to a conviction based on unethical behavior rather than actual misappropriation of property, a key legal requirement under federal fraud statutes [2].

Chastain, 35, was originally convicted in May 2023 for using non-public information about which NFTs would be highlighted on OpenSea’s homepage to execute trades for personal gain [3]. Prosecutors alleged he made roughly $57,000 through 15 NFT transactions via an anonymous account funded with cryptocurrency [4]. The appeals court, however, pointed out that the original trial failed to establish that the information had any commercial value to OpenSea, a standard necessary for a wire fraud conviction [5].

The case marked the first insider trading prosecution involving NFTs, a category of assets that saw a surge in popularity during the 2021–2022 crypto boom [6]. The ruling highlighted the ambiguity in applying traditional legal standards to digital assets and emphasized the need for clearer definitions of what constitutes “property” in the context of blockchain and NFTs [7].

While the appeals court majority argued that the lower court’s instructions could overly broaden the scope of fraud law to include minor or harmless actions, Judge Jose Cabranes dissented, maintaining that Chastain’s actions were deserving of conviction [8]. The case has now been sent back to U.S. District Judge Jesse Furman, who will decide whether the prosecution will pursue a retrial [9]. Chastain’s legal team described the original conviction as a “miscarriage of justice” and expressed confidence in the appeals ruling [10].

This decision underscores the complexity of regulating digital asset markets with legacy legal frameworks, particularly as the boundaries between unethical behavior and actual criminal conduct become increasingly blurred. The 2nd Circuit’s decision also reflects a judicial shift toward greater scrutiny of how legal definitions are applied in the rapidly evolving crypto sector [11].

The case, United States v. Chastain, No. 23-7038, remains pending further procedural steps [12].

Source:

[1] Reuters

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

[2] Cointelegraph

https://cointelegraph.com/news/appeals-court-overturns-conviction-opensea-insider-trading-case

[3] Bloomberg

https://news.bloomberglaw.com/daily-labor-report/ex-opensea-manager-wins-reversal-of-nft-insider-trade-conviction

[4] Reuters

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

[5] U.S.

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

[6] Reuters

[7] U.S.

[8] U.S.

[9] U.S.

[10] U.S.

[11] AInvest

https://www.ainvest.com/news/appeals-court-overturns-nft-insider-trading-conviction-citing-legal-ambiguity-2508/

[12] U.S.