In a jolt to the world of crypto enforcement, a federal appeals court has overturned the first-ever NFT-related insider trading conviction, throwing out the case against Nathaniel Chastain, a former OpenSea product manager once accused of profiting from secret NFT picks.
Chastain’s 2023 conviction had marked a milestone for prosecutors eager to police the booming, law-light frontier of digital assets. But the 2nd U.S. Circuit Court of Appeals wasn’t convinced. In a 2-1 decision, the Manhattan panel ruled that faulty instructions to jurors muddied the legal waters—making it possible he was found guilty for conduct that, while shady, might not have broken the law.
At the heart of the case: Chastain’s alleged scheme to quietly purchase NFTs before they were spotlighted on OpenSea’s homepage, then flip them for profit once the spotlight sent prices soaring. He used anonymous crypto wallets, netted around \$57,000, and—prosecutors argued—abused confidential company intel for personal gain.
But Judge Steven Menashi wasn’t buying the framing. He criticized the lower court for suggesting Chastain didn’t need to steal information of actual commercial value to be guilty of wire fraud. He also rejected the idea that simply acting against “fundamental honesty” or “fair play” was enough to land a conviction. If that were the case, Menashi warned, “almost any deceptive act could be criminal.”
That logic proved persuasive. The appeals court kicked the case back to the trial judge, leaving the door open for a potential retrial—but no word yet from federal prosecutors on whether they’ll take another swing.
Not everyone on the bench agreed. Circuit Judge Jose Cabranes dissented, arguing that Chastain’s conviction should have stood.
Chastain’s legal team, unsurprisingly, cheered the decision. “This case was a miscarriage of justice,” said his lawyers. Now, at least temporarily, their client walks free.
Whether the government wants to roll the dice again remains to be seen. But for now, the crypto world gets another reminder: in the wilds of Web3, the legal rulebook is still under construction.
