DOJ Drops OpenSea NFT Fraud Case After Appeals Court Overturns Conviction
US prosecutors have formally dropped their case in opposition to former OpenSea supervisor Nathaniel Chastain following an appeals court docket reversal that dismantled what was as soon as positioned because the first NFT insider trading prosecution in American historical past.
According to sources, the Justice Department introduced Wednesday it will enter a one-month deferred prosecution settlement earlier than dismissing the indictment with prejudice.
The choice closes a chapter that began in June 2022 when Chastain was arrested and charged with wire fraud and cash laundering for utilizing confidential info to buy NFTs earlier than they had been featured on OpenSea’s homepage.
The case attracted widespread consideration as prosecutors tried to use conventional monetary crime statutes to rising digital asset markets.
Appeals Court Ruling Undermines Prosecution’s Foundation
Manhattan US Attorney Jay Clayton, a former SEC chair, instructed the federal court docket that prosecutors wouldn’t retry the case given Chastain had already served three months in jail and agreed to not contest forfeiture of 15.98 ETH value $47,330.
“The curiosity of the United States will likely be finest served by deferring prosecution of this matter and never retrying the case,” Clayton wrote within the court docket submitting.
The collapse stems from a July 2024 appeals court docket choice that discovered the trial jury obtained flawed directions.
The 2nd US Circuit Court of Appeals dominated 2-1 that jurors had been improperly instructed they may convict Chastain primarily based solely on unethical habits reasonably than precise theft of property with business worth.
Judge Steven Menashi wrote final yr August that the decrease court docket erred by permitting conviction even when the knowledge Chastain used lacked tangible worth to OpenSea.
The appeals panel sharply criticized jury directions that permitted conviction primarily based on violations of “broad notions of honesty and truthful play,” warning such requirements might criminalize practically any misleading act.
The court docket discovered the featured NFT knowledge was not monetized by OpenSea and was not handled internally as a worthwhile asset, making it too “ethereal” to qualify as property beneath federal wire fraud statutes.
Original Conviction Built on Novel Legal Theory
Chastain was convicted in May 2023 after prosecutors accused him of exploiting his position to purchase dozens of NFTs shortly earlier than they appeared on OpenSea’s homepage between June and September 2021.
After tokens had been featured and costs elevated, he bought them at two- to five-times revenue utilizing nameless wallets. The authorities alleged he revamped $57,000 by way of the scheme.
US Attorney Damian Williams had described the case as a warning to digital asset markets when asserting costs. “NFTs is perhaps new, however this sort of felony scheme shouldn’t be,” Williams stated.
“As alleged, Nathaniel Chastain betrayed OpenSea through the use of its confidential enterprise info to earn a living for himself.“
The conviction got here after a week-long trial, with prosecutors charging wire fraud reasonably than securities fraud since NFTs haven’t been legally categorized as securities.
More than 300 protection attorneys had filed letters supporting dismissal, arguing that treating confidential enterprise info as property would “criminalize a broad swath of conduct.“
Broader Regulatory Retreat Under Trump Administration
The dropped prosecution aligns with a broader shift in federal crypto enforcement beneath the Trump administration.
As reported by Cryptonews earlier at present, a Cornerstone Research report discovered the SEC initiated simply 13 crypto-related actions in 2025, down 60% from 33 in 2024 and the bottom stage since 2017.
The company has dismissed a number of high-profile circumstances together with these in opposition to Coinbase, Kraken, Consensys, and Cumberland DRW.
The SEC also closed its investigation into OpenSea in February 2025 after issuing a Wells notice in August 2024 that alleged the platform functioned as an unregistered securities market.
The SEC has formally ended its investigation into NFT market @OpenSea, in accordance with the corporate’s founder, @dfinzer.#SEC #OpenSeahttps://t.co/OtOT6c3WMd
— Cryptonews.com (@cryptonews) February 22, 2025
At that point, OpenSea founder Devin Finzer referred to as the closure “a win for everybody who’s creating and constructing in our area.“
For now, Chastain won’t face supervision by US Pretrial Services and might search return of the $50,000 wonderful and particular evaluation paid following his conviction.
Notably, the worldwide NFT market cap at the moment stands at $2.56 billion, down 6.72% within the final 24 hours with whole gross sales quantity reaching $3.68 million, in accordance with CoinGecko data.
The determine represents an 84.78% decline from the market’s peak of $16.82 billion in April 2022, when digital collectibles had been among the many hottest belongings in crypto and the Chastain case was first unfolding.
The submit DOJ Drops OpenSea NFT Fraud Case After Appeals Court Overturns Conviction appeared first on Cryptonews.
