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In a dramatic turn for the crypto world, the Second Circuit on Thursday overturned the fraud conviction of Nathaniel Chastain, a former OpenSea manager once accused of pioneering “insider trading” in NFTs. The appellate panel ruled that jurors may have convicted him for conduct deemed unethical but not necessarily fraudulent.

Chastain, who allegedly pocketed $57,000 by buying NFTs he knew would be featured on OpenSea’s homepage and then flipping them at a profit, had been convicted in Manhattan of wire fraud and money laundering. That conviction is now vacated, with the case remanded back to the lower court.

The Heart of the Legal Dispute

Writing for the majority, U.S. Circuit Judge Steven Menashi agreed with Chastain’s defense that his decisions about which NFTs would appear on the site’s homepage did not qualify as “property” under the wire fraud statute.

“We agree with Chastain that confidential business information must have commercial value to a company to qualify as its property,” Menashi wrote, emphasizing that merely knowing what artwork would be promoted lacked inherent value to OpenSea itself.

Partial Dissent: A Sharp Divide

Not everyone on the panel agreed. U.S. Circuit Judge José Cabranes issued a partial dissent, warning that the majority had created a new and dangerous hurdle for prosecutors.

“This novel addition to our law ignores unambiguous and binding precedents,” Cabranes argued, stressing that confidential business information should count as property under wire fraud statutes without needing proof of “commercial value.”

Cabranes said he would have upheld Chastain’s conviction, calling the ruling a step backward in prosecuting financial misconduct in emerging markets like crypto.

Defense Celebrates, Government Silent

Chastain’s counsel, Alexandra Shapiro of Shapiro Arato Bach LLP, blasted the original conviction as a “miscarriage of justice” and praised the Second Circuit’s decision.

“We are delighted that the court set straight this important area of law,” Shapiro said in a statement.

The U.S. Attorney’s Office for the Southern District of New York, which prosecuted the case, declined to comment.

Who’s Who in the Case

The three-judge panel included Steven Menashi, José Cabranes, and Richard Wesley.

Chastain was represented by Shapiro and Jason Driscoll of Shapiro Arato Bach LLP, along with David Miller and Daniel Filor of Greenberg Traurig LLP. The government’s team included Nicolas Roos, Thomas Burnett, and Allison Nichols of the U.S. Attorney’s Office.

A Precedent for Crypto Law?

The ruling underscores the legal murkiness of applying traditional fraud statutes to the fast-moving world of blockchain and digital assets. While Chastain’s actions may have tested ethical boundaries, the Second Circuit determined they did not squarely fit the mold of federal wire fraud.

The decision could ripple through future cases involving insider knowledge in crypto markets, where the definition of “property” remains hotly contested.