Summary
The United States Court of Appeals for the Second Circuit vacated Nathaniel Chastain’s convictions for wire fraud and money laundering, which stemmed from his trading of non-fungible tokens (NFTs) while employed at OpenSea. The court held that the district court erred by instructing the jury that confidential business information qualifies as property under the wire fraud statute even if it lacks commercial value, and that fraudulent conduct could be found based merely on unethical business practices rather than the misappropriation of a traditional property interest. The appellate court also affirmed the district court’s evidentiary rulings excluding certain testimony regarding employee confidentiality views and co-founder trading history. The case was remanded for further proceedings consistent with the opinion.
Topics
Practice areas
Questions Presented
- Whether the district court's jury instruction that confidential business information could be property without showing commercial value was erroneous.
- Whether the district court abused its discretion by excluding evidence relating to confidentiality and employee testimony.
Holdings
- The instruction was erroneous; confidential business information must have commercial value to qualify as property under the wire fraud statute. The judgment of conviction is vacated and the case remanded.
- The district court did not abuse its discretion; the evidentiary rulings are affirmed.
Key quotations
“We conclude that the error cannot be considered harmless. The jury heard testimony that OpenSea could have experienced reputational harm if its users learned about Chastain’s conduct, but the evidence also indicated that the featured NFT information was so tangential to OpenSea’s business that failing to maintain the confidentiality of the featured NFTs would not affect users’ attitudes toward the platform.” (at 411)
Factual background
Nathaniel Chastain, head of product at OpenSea, selected NFTs to be featured on the platform, purchased them before they were featured, and sold them for profit. The government charged him with wire fraud and money laundering, asserting that the featured NFT information was OpenSea's property.
Procedural history
The district court convicted Chastain of wire fraud and money laundering based on jury instructions that treated the featured NFT information as property. Chastain appealed, arguing the instructions were erroneous and that evidentiary rulings were abusive.
Remand instructions
For further proceedings consistent with this opinion.