A U.S. federal appeals court has overturned the conviction of a former product manager at NFT marketplace OpenSea, who had been found guilty of insider trading, according to Reuters. The ruling comes after the defense challenged the accuracy of jury instructions. Prosecutors had previously called the case the first-ever insider trading prosecution involving digital assets.
Faulty Instructions and Case Reconsideration
The Second Circuit Court of Appeals in New York partially upheld the appeal of Nathaniel Chastain, a former OpenSea product manager. The court agreed that the jury had received incorrect guidance, which could have led them to convict him based solely on unethical behavior without proving actual harm to the company.
Chastain had previously been sentenced to three months in prison for wire fraud and money laundering. He filed an appeal following the May 2023 sentencing.
The case has now been sent back for reconsideration to Judge Jesse Furman in Manhattan federal court. Prosecutors have not yet indicated whether they will pursue a retrial. A spokesperson for the U.S. Attorney’s Office in Manhattan declined to comment.
What Chastain Was Accused Of
According to prosecutors, Chastain used his access to confidential information at OpenSea to find out in advance which NFTs would be featured on the platform’s homepage. He allegedly bought these tokens through an anonymous wallet, waited for their prices to rise following the homepage listing, then sold them and transferred the profits to his personal account.
In total, the court said he made around $57.000 by executing 15 such trades. Prosecutors argued that Chastain’s actions undermined trust in the digital asset market, which was valued at $40 billion annually at the time charges were filed in June 2022.
Split Opinion in the Court
The decision was reached by a 2–1 majority. Judge Steven Menashi, who supported overturning the conviction, emphasized that to be guilty of fraud, it is not enough to simply violate general standards of honesty - the use of information valuable to an employer must be proven. He argued that the trial court’s instructions risked criminalizing any form of deceit.
Judge Jose Cabranes disagreed with the majority and argued that the original conviction should be upheld.
Chastain’s attorneys, Alexandra Shapiro and David Miller, stated they were pleased with the appeals court ruling. They described the initial conviction as a miscarriage of justice.
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