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Appeals Court Overturns Initial NFT Insider Trading Verdict

In a contentious ruling, the 2nd U.S. Circuit Court of Appeals in Manhattan decided, through a 2-1 majority, that potentially misleading jury guidelines may have contributed to Nathaniel Chastain's 2023 conviction for questionable conduct. As a result, they overturned Chastain's conviction.

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Appellate Court Overturns Initial Decision on NFT Securities Fraud Case
Appellate Court Overturns Initial Decision on NFT Securities Fraud Case

Appeals Court Overturns Initial NFT Insider Trading Verdict

In a landmark decision, a federal appeals court in the U.S. has overturned the conviction of Nathaniel Chastain, a former product manager at OpenSea, the popular online marketplace for non-fungible tokens (NFTs). The 2nd U.S. Circuit Court of Appeals in Manhattan delivered the ruling in a 2-1 split decision on November 2, 2023.

The case against Chastain, who was found guilty of wire fraud and money laundering for using insider information to trade NFTs, was originally tried and sentenced in May 2023. He was sentenced to three months in prison and ordered to pay restitution.

As the head of product at OpenSea, Chastain was tasked with deciding which NFTs would be featured on the platform. Court documents detail that he made about $57,000 from buying and selling 15 NFTs using insider information.

The appeals court has returned the case to U.S. District Judge Jesse Furman in Manhattan, citing procedural errors and the need for a thorough review of evidence. The court agreed that erroneous jury instructions could have led to Chastain's conviction based on unethical behavior, regardless of the information's value to OpenSea.

Circuit Judge Steven Menashi stated that the district court erred by instructing the jury that it could find Chastain guilty of wire fraud if the misused information lacked commercial value to OpenSea. Menashi argued that if this were the test, "almost any deceptive act could be criminal."

This case is being referred to as the first insider trading case involving NFTs by prosecutors. It is not clear whether they plan to retry Nathaniel Chastain. The appeals court's decision has raised questions about the boundaries of insider trading in the rapidly growing NFT market.

Despite the legal setbacks, the NFT market has continued to thrive, with many NFTs on OpenSea appreciating in price. The case of Nathaniel Chastain serves as a reminder of the need for transparency and ethical practices in the burgeoning world of digital assets.

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