No Crime Committed In OpenSea, NFT Insider Trading Case: Former SEC Attorney Comments

In the summer of 2022, NFT (non-fungible token) platform OpenSea saw a former employee charged with pursuing a digital asset insider trading ploy. The former Product Manager was arrested and charged with wire fraud and money laundering.

As outlined by the US Department of Justice, the defendant utilized insider information to benefit financially. Effectively, the individual in question knew which NFTs were to be featured in advance and thus purchased them before the promotion. The individual apparently purchased these NFTs and then sold them later for 2 to 5 times the initial value.

At the time, US Attorney Damian Williams commented on the allegations, explaining that while NFTs may be new, the type of crime was not.

An OpenSea spokesperson shared a comment with CI explaining that when they learned of the apparent transgression, they initiated an investigation and then asked the individual to leave the company. The activities in question were said to be “in violation of [their] employee policies and in direct conflict with [their] core values and principles.”

In May 2023, the individual was convicted by a jury and sentenced to three months in prison, which was subsequently satisfied by the time already served. In recent days, the case against the defendant was heard by an appellate court, and the individual was found innocent of all charges.

On July 31, 2025, the US Court of Appeals vacated the conviction, finding the information the individual misappropriated from OpenSea could not sustain the wire fraud charge because it had no economic value to the company.  To a non-legal observer, this appears odd.

Did the individual use inside information illicitly? Did they benefit financially from this information?  It seems obvious to most, but the court saw otherwise.

CI connected with Philip Moustakis, Partner at the global law firm of Seward & Kissel. Before joining the firm, Moustakis was an attorney at the Securities and Exchange Commission in the Enforcement Division and a founding member of the SEC’s Cyber Unit. We asked Moustakis about the case and his opinion on the court’s decision.

Is this a case where the prosecution pursued the wrong crime?

Philip Moustakis: No. It appears to be a case where there was no crime. Here, the Second Circuit found the jury could have convicted Chastain for unethical behavior, rather than conduct that meets all the elements of the wire fraud statute.

As the defendant intended to use information to obtain money through the sale of NFTs, the court’s decision seems somewhat obtuse. Can you define “traditional” property interests? Was the court’s decision based on the premise that non-fungible tokens are not traditional property?

Philip Moustakis: In short, the Court found that advance knowledge of which NFTs would be featured on the site did not have commercial value to OpenSea and thus did not qualify as traditional property under the wire fraud statute. The Court did not find that NFTs themselves are not traditional property, and one could imagine facts and circumstances, for example, a case involving theft of NFTs that would satisfy the statute.

As some NFTs could be deemed to be securities, should the prosecution have pursued this path?

Philip Moustakis: In my view, the vast majority of NFTs are art or collectibles, not securities.

A few NFTs may theoretically check all the boxes of the Howey test for an investment contract, but proving any of the NFTs involved here were securities would have added to the prosecution’s burden.

If no crime was committed, is there a wrongful termination case here?

Philip Moustakis: No. The conduct alleged was unseemly, at least, and posed reputational and other risks to the company.

On the surface, there seems to be a crime. Is this a situation where the law has not caught up to the digital asset ecosystem?

Philip Moustakis: In my view, the technology is somewhat beside the point—one can imagine similar conduct in a business that sells physical art or collectibles—but the case stands for the proposition that not all unethical or distasteful business conduct is a crime.