Chastain: Pushing the Boundaries of Insider Trading
Summary
The Second Circuit in United States v. Chastain reversed a wire fraud conviction involving an OpenSea employee who traded NFTs he knew would be featured on the site. The court held that the wire fraud statute protects only information that qualifies as a company’s “property” in the traditional sense — meaning information that has commercial value to the employer. Information valuable only to an employee for trading, but not commercially valuable to the company, does not meet that threshold. The decision narrows the scope of the wire fraud statute and could influence criminal securities prosecutions and civil Rule 10b-5 actions.
Key Points
- The defendant, Nathan Chastain, bought NFTs he knew would be featured on OpenSea and profited once they were posted; he was convicted under the wire fraud statute and for money laundering.
- The Second Circuit found the wire fraud statute covers only “traditional property interests” and held that confidential information is property only if it has commercial value to the company.
- The court concluded the featured-NFT information lacked commercial value to OpenSea because it was not commercialised and primarily aimed to promote artists.
- The conviction was vacated because the jury may have relied on the defendant’s unethical conduct rather than misappropriation of a property interest.
- A dissent argued that exclusivity of use — not separate proof of commercial value — suffices to make confidential information the company’s property.
- The ruling could affect criminal securities prosecutions under 18 U.S.C. § 1348 and has potential consequences for civil enforcement under Rule 10b-5 and CFTC Rule 180.1, especially in “shadow trading” and misappropriation theories.
- Practical defence: challenge whether the information had commercial value to the employer; corporate response: clearly document which information is economically valuable and confidential.
Context and relevance
This decision tightens criminal liability for employee misuse of employer information by introducing a commercial-value requirement for “property” under wire fraud. Given the Second Circuit’s prior linking of property definitions across wire and securities fraud statutes, Chastain may be cited in criminal securities cases and could complicate civil misappropriation claims under Rule 10b-5. The ruling arrives amid growing enforcement against insider trading in digital assets and other nontraditional information streams, so its ripple effects could touch cases involving shadow trading, correlated-industry trades, and novel data sources.
Why should I read this?
Short version: if you work in securities, compliance, defence or in-house counsel, this ruling changes the playbook. It gives defence teams a neat lever — argue lack of commercial value — and forces companies to be explicit about what they treat as economically valuable confidential information. Read it to know where enforcement might wobble next and what practical steps companies should take now.
