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Second Circuit Vacates Wire Fraud Conviction For “Insider Trading” On NFTs
08/05/2025On July 31, 2025, a divided panel of the United States Court of Appeals for the Second Circuit issued an opinion vacating the wire fraud and money laundering convictions of a former manager of a marketplace for non-fungible tokens (“NFTs”) that had been obtained on a misappropriation insider trading theory. The Court held that the district court had erred in instructing the jury on what constituted “property” under the statute. United States v. Chastain, No. 23-7038 (2d Cir. July 31, 2025). The Court concluded that the district court’s instructions had improperly permitted the jury to convict defendant based on misappropriating information from his employer that lacked commercial value to the employer and otherwise resembled a traditional property interest, which created a risk that defendant was convicted “based on conduct that [the jury] found to be unethical rather than fraudulent.”
District Court Proceedings
On May 31, 2022, the Department of Justice filed a two-count indictment against defendant for wire fraud and money laundering. In August 2022, defendant filed a motion to dismiss, arguing that the indictment failed to allege that the featured NFT information was the company’s property because it lacked commercial value; the district court denied the motion. The case proceeded to trial in April 2023.
According to the evidence presented at trial, the company at issue was an online platform that hosts the sale and purchase of NFTs. The company itself did not buy or sell NFTs. Rather, it provided a marketplace and charged a fee for each transaction utilizing the platform. In 2021, the company added a feature to its website designed to promote user interest by highlighting specific NFTs. This NFT promotion feature had historically led to increased sales prices for the featured NFTs.
The government alleged that defendant, the company’s former head of product, was responsible for selecting which NFTs would be featured on the website, and that in the fall of 2021 he began purchasing NFTs soon before they were featured. Specifically, the government alleged that defendant purchased fifteen NFTs, often by using anonymous accounts, and then sold the NFTs after each had been featured on the company’s website. The government claimed that he made approximately $57,000 through this conduct.
The jury found defendant guilty on both the wire fraud and money laundering counts. He was sentenced to three months incarceration and three years of supervised release.
Vacatur Of Conviction
Defendant appealed his conviction, in part by challenging two jury instructions related to the elements of wire fraud given by the district court:
First, the district court instructed the jury that a company’s confidential business information is property under the wire fraud statute and that the government did not have to prove that a defendant misappropriated information that had value to a company in order to find that it qualified as property.
Second, the district court instructed the jury that it could find defendant had devised a scheme to defraud if it found the conduct was “deceptive” or “departed from the traditional notions of fundamental honesty and fair play in the general and business life of society.”
On appeal, a divided panel of the Second Circuit agreed with defendant’s challenge and found that the district court erred in instructing the jury on the elements of wire fraud.
The majority opinion (Judges Menashi and Wesley) held that under Supreme Court precedent, “not all information kept confidential qualifies as property.” The majority held that the district court erred in instructing the jury that the government need not prove that the company had a commercial interest in the featured NFT information. Rather, citing Ciminelli v. United States, 598 U.S. 306, 312 (2023), the majority found that “‘[t]he right to exclusive use of information, without evidence that maintaining the confidentiality of the information had economic value to the company, … cannot qualify as property under the wire fraud statute.”
According to the majority, the district court compounded the error in its “property” instruction by instructing the jury that the “scheme to defraud” element could be satisfied by finding that defendant’s actions departed from traditional notions of honesty and fair play. The majority held that the “instructions invited the jury to return a guilty verdict if it found that [defendant] had acted unethically even if he did not invade a traditional property interest in the company.” Because the majority could not conclude that the error was harmless, they vacated the conviction and remanded the case for further proceedings.
Judge Cabranes dissented in part. Relying on the Supreme Court’s holding in Carpenter v. United States, 484 U.S. 19, 26-27 (1987), Judge Cabranes opined that the district court had properly instructed the jury on the elements of wire fraud, in particular that confidential business information “standing alone” is property for the purposes of the wire fraud statute, because the company’s “exclusive right to confidential business information is the be-all and end-all for determining whether that information is property under the federal wire fraud statute.” Judge Cabranes also disagreed with the majority that the district court’s instruction on the “scheme to defraud” element of wire fraud was made in error because, when taken as a whole with the rest of the jury instructions, the instruction aligned with definitions of fraud espoused by the Second Circuit, rather than creating a “federal common-law fiduciary duty” as held by the majority.
Conclusion
The Second Circuit’s opinion is yet another reminder that the contours of insider trading—at least outside of traditional stock trading—remain murky. And while not creating a clear circuit split, it stands in meaningful tension with the Panuwat decision issued by the Ninth Circuit in 2024. In that case, the court leaned very heavily on the fact that the information at issue was subject to company confidentiality policies; in this case, the Second Circuit said that confidentiality alone is not enough. While the fact pattern at issue in this latest case is somewhat unique, future defendants will undoubtedly point to it in trying to rein in future insider trading prosecutions.
