Jury Questions in the Nate OpenSea NFT "Insider Trading" Criminal Trial Offer Some Interesting Insights
Yesterday, a jury in Manhattan federal court found former OpenSea product manager, Nathanial Chastain, guilty of wire fraud and money laundering for allegedly using inside company information to front-run trades of NFTs featured on OpenSea’s homepage. The government charged that Chastain profited in excess of $50,000 by front-running trades of NFTs that were to be featured on OpenSea’s homepage. According Reuters, Assistant United States Attorney Thomas Burnett told the jury that Chastain "abused his status at OpenSea to line his own pockets, and he lied to cover his tracks" Reuters
Chastain now awaits sentencing. His sentence will be determined in-part based on sentencing guideline estimates generated by the United States Probation Office. The probation office will ultimately release a PSR to the court and the parties summarizing the facts and evidence proven at trial and an advisory guideline imprisonment range for the court to consider at sentencing. Federal judges are not bound by these guideline estimates and have the discretion to deviate either above (up to the max. statutory term of imprisonment per count of conviction) or below the proposed advisory sentencing guideline range.
Based on the loss amount alleged by the government, the estimated sentencing guideline range for a defendant with no prior criminal history who is convicted of wire fraud and money laundering after trial would result in a sentencing guideline offense level of 12 and a guideline imprisonment range of between 10 - 16 months in federal prison. This is only a very rough estimate as there are certain guideline enhancements that could apply and impact such a sentence depending upon the specific offense conduct at issue in the case.
During deliberations, the jury wrote several questions to the court, including one note informing the court that jury was unable to reach a unanimous verdict. Jury Questions The jury obviously was able to overcome that deadlock and reach a unanimous verdict of guilt as to both counts.
The remaining jury questions sent to the court, however, offer some interesting insights into the trial and what issues might be raised on appeal. The jury requested a “read-back” of the trial testimony of OpenSea’s CEO Devin Finzer. According to an article published by Blockworks:
OpenSea’s CEO Devin Finzer told US prosecutors this week that the case against Chastain is “unfair” and affecting the former head of product’s mental health, per court documents. Blockworks has reached out to OpenSea for comment.
In response to the above, the government moved to bar Chastain’s defense team from “asking Finzer or any witness their opinion about whether the prosecution is unfair or has negatively impacted the defendant’s mental health.” The trial court granted the government’s motion. Blockworks
In another written question, the jury asked the court “Re: Count One, Element One”:
If the defendant viewed the information as confidential, but Devin Finzer, the other signatory to the Confidentiality Agreement did not, is that enough to consider it confidential?” Jury Questions
This question goes to the core of the issue at trial in this case—did Chastain use “confidential” inside information in violation of OpenSea policy to purchase the NFTs at issue before they were featured on the company’s home page.
The court responded in writing to the jury’s question and told the jury:
As I previously instructed you, the first element of Count One requires there Government to prove beyond a reasonable doubt that there was a scheme or artifice to defraud OpenSea of its property — specifically, its “confidential business information.” 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. That is, the company must both consider the information to be confidential and take affirmative steps to treat the information as confidential and maintain exclusivity; if the company “considers”information to be confidential but does not take affirmative steps to treat it as such and maintain exclusivity, it does not qualify as property.
As I previously explained, some of the factors you may consider in determining whether OpenSea treated the information at issue as confidential include, but are not limited to: written company policies and agreements, employee training, measures the employer has taken to guard the information’s secrecy, the extent to which the information is known outside the employer’s place of business, the ways in which other employees may access and use the information, and whether the information had economic value to the employer. As these instructions suggest, the focus of the inquiry with respect to whether the information at issue was “confidential business information” is on the company, namely OpenSea. Of course, a company can act only through its officers, employees, and corporate materials, such as policies and agreements. Thus, in evaluating how OpenSea considered and treated the information at issue, you may consider the conduct and testimony of Mr. Finzer, as an officer of the company, as well as any other evidence that relates to the issue, including how employees at OpenSea treated the information within the scope of their employment and any other evidence relevant to the factors referenced above. What weight, if any, you give any such evidence is, of course, for you to decide.
The next day, the jury followed that question up with the following: “In the court of law, can you provide a definition of trade secret.” Jury Questions The trial court responded to this question from the jury as follows:
In your note from today at 10:40 a.m., you have asked about the definition of “trade secret.” In connection with your deliberations, you must decide whether the information at issue is “confidential business information” as I have defined that phrase for you. The meaning of “trade secret” and the meaning of “confidential business information” are different. Information may qualify as “confidential business information” even if it does not constitute a “trade secret.” In evaluating Count One, you should apply the definition of “confidential business information” as I have given it to you. Jury Questions
Sometime thereafter, the jury retuned its unanimous verdict of guilt as to both counts.
If Chastain appeals his judgment and ultimate sentence, it is very likely that these issues concerning whether he traded the NFTs at issue based on “confidential business information” will be raised in the United States Court of Appeals for the Second Circuit. Stay tuned for more on all of this.
Nothing in this post should be considered legal advice or the creation of an attorney-client relationship. This blog is strictly for informational purposes only.