Chastain: Pushing the Boundaries of Insider Trading

Introduction

Insider trading cases may have become harder to prosecute. On July 31, 2025, the Second Circuit released its opinion in United States v. Chastain, an insider trading case in which the defendant had been convicted by a jury for misappropriating confidential information belonging to his employer and using that information to trade for personal gain. That sounds like garden variety insider trading, except here, there was a twist. Whereas most criminal insider trading cases are charged as securities fraud, here the defendant was tried and convicted under the wire fraud statute. The Second Circuit reversed the conviction, and in so doing substantially narrowed the extent to which the wire fraud statute protects against an employee’s misuse of a company’s confidential information. Specifically, the Second Circuit found that the wire fraud statute’s prohibition against misappropriating an employer’s “property” extends only to information that has commercial value to the employer. Information that is of value to an employee for trading purposes—but that lacks commercial value to the employer—is fair game.

While the criminal wire fraud and securities fraud statutes are distinct, they share a common nucleus in their definition of ‘property’. The Second Circuit’s decision could thus have wide-ranging impact upon prosecutions concerning securities fraud, too. The impact could grow further when considering the possible impacts upon civil actions under Rule 10b-5. This client alert discusses the Chastain decision and its potential impact on defending insider trading in securities and commodities cases.

Chastain Case Background

Nathan Chastain was head of product at OpenSea, an online marketplace for non-fungible tokens (NFTs). In this role, he was responsible for selecting NFTs to feature on OpenSea’s homepage. NFTs selected for the website’s homepage typically increased in value once posted. Chastain purchased approximately fifteen NFTs that he knew would subsequently be featured on OpenSea’s website. Taking advantage of the corresponding rise in value, Chastain made approximately $57,000 by buying NFTs pre-feature and selling them post-feature. After his trading was discovered, the government charged him with one count of wire fraud, and one count of money laundering predicated upon the wire fraud offense. The government did not charge securities fraud, presumably to avoid being required to prove that NFTs are “securities” under federal law. At trial, the government offered testimony from OpenSea’s co-founders that the goal of the featured NFT section was to make OpenSea’s website more dynamic, and to increase outreach to “indie artists” to demonstrate that “OpenSea is a place for them too.” OpenSea did not itself trade featured NFTs, in part out of fear that doing so would have “compromised on OpenSea’s brand of neutrality.” OpenSea’s co-founders further testified that they considered the selection of featured NFTs to be confidential, noting that they expected it to be covered by the confidentiality agreement Chastain signed upon his hiring.

It is settled law that the wire fraud statute prohibits an employee from misappropriating his or her employer’s “property” for personal gain. Here, the District Court issued the following jury instructions regarding the “property” element of wire fraud—

A company’s confidential business information is a type of property. Information is confidential business information if it was acquired or created by a business for a business purpose, and the business both considered and treated that information in a way that maintained the company’s exclusive right to that information…[in considering whether OpenSea treated the information as confidential] You may also consider whether the information had economic value to the employer, but the government is not required to prove that the information had such value. [1] [emphasis added by the 2nd Circuit]

Chastain had instead advocated for an instruction that information is “property” under the wire fraud statute, “only if it is…confidential business information (which must be treated as such) and has inherent value to the purported victim.” [2] [emphasis added by the 2nd Circuit].

The District Court further instructed the jury that it could convict Chastain if his conduct “departed from traditional notions of fundamental honesty and fair play.”

The jury convicted Chastain on one count of wire fraud and one count of money laundering. Chastain appealed, arguing that the jury instructions were erroneous “because the government failed to establish that the featured NFT information was OpenSea’s property and because the jury may have convicted him based on conduct that it found to be unethical rather than fraudulent.” [3]

Second Circuit’s Analysis

Relying on Supreme Court precedent, the Second Circuit focused on what is considered “property” under the wire fraud statute. Through Carpenter and Ciminelli—two cases interpreting the wire fraud statute—the Second Circuit highlighted that the wire fraud statute extends to both “tangible” and “intangible” property rights.” [4] Irrespective of tangibility, however, the statute reaches only “traditional property interests”, which the panel defined as interests that “had long been recognized as property.” [5] The panel therefore reasoned that “not all information kept confidential qualifies as property.” [6]

The question then became what subset of a company’s confidential information qualifies as its “property” in the traditional sense. To illustrate, the Second Circuit pointed to two examples. In Carpenter, the Wall Street Journal’s prepublication news content was deemed to be “property”—despite being intangible—because publishing articles was the Journal’s “stock in trade” and way of making money. [7] And in Grossman, a law firm had a property right in confidential information entrusted to the firm because maintaining confidentiality helped protect or enhance the firm’s reputation. [8]

From these examples the panel reasoned that the guiding inquiry is whether the information cited has commercial value to the company, and not whether it has intrinsic value. If the information does not have commercial value to the company, then it cannot qualify as the company’s “property” under the wire fraud statute.

Applying this analysis to the facts in Chastain, the Second Circuit found that the evidence suggested that the “featured NFT information was so tangential to OpenSea’s business that it lacked commercial value to the company.” [9] The featured NFT information was not commercialized, and was merely designed to help NFT projects get noticed—suggesting it did not have commercial value.

The Second Circuit acknowledged testimony that Chastain’s actions could harm OpenSea’s reputation as neutral but found it speculative—there was no evidence that not trading on this information was necessary to maintaining the business. And because jury notes suggested that the conviction was based on Chastain acting unethically in his trades—even though they were based on information that did not have commercial value to OpenSea—the Second Circuit found error, vacating Chastain’s conviction and remanding for further proceedings. In the absence of the misappropriation of a traditional property interest, unethical conduct could not alone sustain the conviction.

Judge Cabranes’s Dissent

Judge Cabranes drew upon the same precedents to reach a different conclusion. He noted that neither Carpenter nor Grossman require a separate showing of commercial value in order for confidential business information to be considered property for the purposes of the wire fraud statute. [10]

Indeed, Judge Cabranes grounded his analysis in Carpenter, which he argued centers the inquiry on whether a company possesses the right to the information’s exclusive use (rather than whether the information has value). [11] Once exclusive use is established, the information is property within the meaning of the wire-fraud statute. Since this information was clearly OpenSea’s to exclusively use, Judge Cabranes would have affirmed the conviction.

The Overlapping Wire & Securities Fraud Statutes

While Chastain may have focused on wire fraud, there is reason to believe it could be applied in the securities fraud context. An open question exists as to whether 18 U.S.C. § 1348—one of the mechanisms by which securities fraud can be criminally charged—is interpreted differently given Chastain’s reading of 18 U.S.C. § 1343 (wire fraud).  The two fraud statutes have some fundamental similarities, especially as to the use of the word ‘property’:

18 U.S.C. § 1343 Wire Fraud –

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both. [emphasis added]

18 U.S.C. § 1348 Securities Fraud –

Whoever knowingly executes, or attempts to execute, a scheme or artifice (1) to defraud any person in connection with any commodity for future delivery, or any option on a commodity for future delivery, or any security of an issuer with a class of securities…OR (2) to obtain, by means of false or fraudulent pretenses, representations, or promises, any money or property in connection with the purchase or sale of any commodity for future delivery, or any option on a commodity for future delivery, or any security of an issuer, shall be fined under this title, or imprisoned not more than 25 years, or both. [12] [emphasis added]

The Second Circuit has expressly linked the two, using the same definition of property for its analysis of both § 1343 and § 1348. [13] It thus stands to reason that Chastain, while indeed a decision about NFTs and charged under § 1343, carries implications for securities fraud charged under § 1348 as well.

Criminal Caselaw WITH Civil Impact

Chastain’s holding clearly has implications for criminal proceedings under the wire fraud statute—but its treatment of confidential information as property only if it has commercial value to the company could muddy the waters for SEC and CFTC civil actions involving misappropriation theories of insider trading. In the securities context, the SEC (and private plaintiffs) generally pursue insider trading cases as violations of Rule 10b-5, which provides as follows:

17 C.F.R. § 240.10b-5 –

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, to employ any device, scheme, or artifice to defraud…or to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. [emphasis added]

Unlike § 1343 and § 1348, Rule 10b-5 does not expressly reference “property.” But as recognized in O’Hagan [14], liability can exist under SEC Rule 10b-5 rule when one “misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information.” [15] The CFTC’s Rule 180.1 is modeled after the SEC’s Rule 10b-5 and prohibits “trading on the basis of material nonpublic information in breach of a pre-existing duty (established by another law or rule, or agreement, understanding, or some other source), or by trading on the basis of material nonpublic information that was obtained through fraud or deception.” The critical “fraud” under this theory (as to both SEC Rule 10b-5 and CFTC Rule 180.1) occurs when one uses a principal’s confidential information—denying the principal’s exclusive use of that information and thus violating their duty—for their self-serving purchase or sale of securities or commodities.

Chastain raises a question: If a company does not have a traditional property interest in information that lacks commercial value to it, would it violate a duty to that company for an employee to take it? A trader might be interested in all manner of information learned through employment that is arguably of no commercial value to his employer, including, by way of example, (a) geolocation data stored on company servers as a byproduct of the company’s revenue-generating telecommunications business; (b) data regarding business at third party retailers maintained as a byproduct of the company’s payment processing business; or (c) information regarding the personal health of the company’s CEO. If the company has no traditional property interest in such information, would it breach a duty to the company (in violation of Rule 10b-5) for an employee to use it?

And Chastain may have additional relevance to the SEC’s “shadow trading” cases, in which an individual learns MNPI about one company and then uses that information to trade in a separate company, often in a highly a correlated industry. [16] In such cases, the commercial value of the information to the employer is more likely to be attenuated.

Key Takeaways

The Chastain decision presents new and potentially powerful avenues to challenge insider trading prosecutions, both criminally and civilly. Most concretely, in criminal prosecutions under the wire fraud statute, a new line of defense exists in disputing whether MNPI is commercially valuable to a business. It is not enough for the government to show that the information is confidential and important to the reasonable investor (i.e., MNPI)—there must now also be proof of its commercial value to a business. And, the logic of Chastain may potentially be extended to criminal securities prosecutions and even civil matters.

Indeed, if courts decline to extend its rationale to civil cases, they will need to rationalize how confidential but not commercially valuable information can serve as the basis for a civil Rule 10b-5 action, yet not constitute “property” under the wire fraud and criminal securities fraud statutes.

Finally, the decision may also have ramifications for companies looking to protect themselves and their information from employee misuse. Company counsel may wish to clearly document which types of information are considered confidential and economically valuable.

1 United States v. Chastain, No. 23-7038, 2025 WL 2165839, at *4 (2d Cir. July 31, 2025).(go back)

2United States v. Chastain, No. 23-7038, 2025 WL 2165839, at *4 (2d Cir. July 31, 2025).(go back)

3United States v. Chastain, No. 23-7038, 2025 WL 2165839, at *4 (2d Cir. July 31, 2025).(go back)

4United States v. Chastain, No. 23-7038, 2025 WL 2165839, at *6 (2d Cir. July 31, 2025), citing Carpenter v. United States, 484 U.S. 19, 25, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987).(go back)

5United States v. Chastain, No. 23-7038, 2025 WL 2165839, at *6 (2d Cir. July 31, 2025).(go back)

6United States v. Chastain, No. 23-7038, 2025 WL 2165839, at *6 (2d Cir. July 31, 2025).(go back)

7United States v. Chastain, No. 23-7038, 2025 WL 2165839, at *6 (2d Cir. July 31, 2025), citing Carpenter v. United States, 484 U.S. at 25- 26, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987).(go back)

8United States v. Chastain, No. 23-7038, 2025 WL 2165839, at *6 (2d Cir. July 31, 2025), United States v. Grossman, 843 F.2d 78 (2d Cir. 1988).(go back)

9United States v. Chastain, No. 23-7038, 2025 WL 2165839, at *9 (2d Cir. July 31, 2025).(go back)

10United States v. Chastain, No. 23-7038, 2025 WL 2165839, at *13 (2d Cir. July 31, 2025) (Cabranes, J. concurring in part and dissenting in part).(go back)

11United States v. Chastain, No. 23-7038, 2025 WL 2165839, at *13 (2d Cir. July 31, 2025) (Cabranes, J. concurring in part and dissenting in part).(go back)

12Importantly, Chastain does not apply directly to 18 U.S.C. § 1348. The omitted text requires that the security in question be registered pursuant to Section 12 of the Exchange Act. Crypto and NFT prosecutions could not proceed under this statute.(go back)

13United States v. Blaszczak, 56 F.4th 230, 245 (2d Cir. 2022).(go back)

14United States v. O’Hagan, 521 U.S. 642, 652, 117 S. Ct. 2199, 2207, 138 L. Ed. 2d 724 (1997).(go back)

15Prohibition on the Employment, or Attempted Employment, of Manipulative and Deceptive Devices and Prohibition on Price Manipulation, 76 Fed. Reg. 41,398, 41,403 (July 14, 2011).(go back)

16Sec. & Exch. Comm’n v. Panuwat, No. 21-CV-06322-WHO, 2022 WL 633306, at *1 (N.D. Cal. Jan. 14, 2022).(go back)