Former OpenSea Manager Has Conviction Overturned in First-Ever Crypto Insider Trading Case

A U.S. Appeals Court overturned the conviction of a former OpenSea product manager Thursday, blowing a hole in what had previously been the most prominent conflict of interest-related crypto industry prosecution in the United States to date.

The Manhattan-based appeals court found that prosecutors in the initial trial of Nathaniel Chastain were improperly allowed to argue that Chastain’s decision-making about what NFTs were featured on OpenSea’s homepage constituted “property” of the company. 

Chastain was found guilty of wire fraud and money laundering for manipulating his knowledge of what NFTs would be featured on the marketplace’s landing page to enrich himself. He was sentenced to three months in prison. At the time of Chastain’s arrest for the charges in 2022, the U.S. Department of Justice touted the case as the “first ever digital asset insider trading scheme.”

The appeals court ruled that Chastain’s decision-making about what NFTs should feature on OpenSea’s homepage did not constitute a traditional property interest of the company.

That doesn’t mean Chastain’s conduct was not still potentially criminal. It means that, as Chastain’s attorneys later argued on appeal, he should have faced a different criminal charge, such as fraud based on unethical business dealings.

“A note from the jury suggested that it believed that OpenSea did not view the featured NFT information as confidential but that Chastain acted unethically by trading on the information,” the appeals court wrote in its decision today. 

“Under these circumstances, we cannot say that the jury would have reached the same verdict if it had been properly instructed that fraud requires the appropriation of a property interest rather than unprofessional business conduct,” the court continued.

The appeals court also noted how, during Chastain’s initial trial, the defendant attempted to show that OpenSea CEO Devin Finzer also used privileged company information for “personal benefit,” as a means to prove that Chastain “didn’t believe company policy precluded officers or employees from using similar company information for personal benefit.”

The district court ultimately prevented Chastain’s attorneys from questioning Finzer about purported trades the CEO made of Polygon’s native token prior to public announcements about the Polygon network’s integration with OpenSea. The court ruled such testimony inadmissible in part because there was no proof Chastain was aware of any such trades at the time of his own featured NFT trades. It also said the testimony would improperly disparage Finzer.

In today’s ruling, the appeals court agreed that Chastain did not offer compelling evidence that he was personally aware of any such trades made by Finzer at the time of the events in questions, nor that his conduct was informed by such knowledge. Thus, it dismissed objections made by Chastain’s attorneys that the district court abused its discretion in making such evidentiary rulings.

The case now kicks back to its initial district court (also in Manhattan), where it will undergo “further proceedings” consistent with the appeals court’s decision today.

Editor’s note: This story was updated after publication to clarify statements made by the appeals court regarding OpenSea CEO Devin Finzer.