Presumably, prosecutors used the wire fraud statute rather than Section 10(b) of the Securities Exchange Act of 1934 to avoid having to deal with the issue of whether any of the digital assets were securities.
In a recent case, the Second Circuit held that criminal defendants prosecuted for wire fraud, 18 U.S.C. § 1343, may only be convicted if their fraudulent scheme sought to obtain property that had “commercial value” to its holder. The court’s opinion in United States v. Chastain, No. 23-7038, 2025 WL 2165839 (2d Cir. July 31, 2025), reversed the defendant’s wire fraud conviction because the court found the property at issue, a company’s confidential business information, did not have any commercial value to the company. Specifically, the court stated that:
[T]he right to exclusive use of information, without evidence that maintaining the confidentiality of the information had economic value to the company, is an "intangible interest[] unconnected to traditional property rights" that cannot qualify as property under the wire fraud statute. Id. at *8 [Emphasis added.]
The Second Circuit’s interpretation of the “property” element is a significant development because it reduces the scope of criminal conduct. In Chastain, federal authorities were prosecuting a former product manager at OpenSea, the world’s largest marketplace for non-fungible tokens (NFTs), in a novel insider trading prosecution involving digital assets. Federal prosecutors alleged that Nathaniel Chastain made about $57,000 through 15 NFT transactions using confidential company information. Presumably, prosecutors used the wire fraud statute rather than Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), to avoid having to deal with the issue of whether any of the digital assets were securities.
Insider Trading: The Exchange Act and Rule 10b–5
Federal prosecutors’ allegations against Chastain for trading NFTs on confidential company information resulted in an indictment for wire fraud and money laundering. Notably, Chastain was not charged with insider trading under Section 10(b) of the Exchange Act and Rule 10b–5 thereunder, 17 C.F.R. § 240.10b–5. Chastain’s alleged conduct, trading on material, nonpublic information, would seemingly qualify as insider trading. However, Rule 10b–5, requires proof that the transaction at issue involved the “purchase or sale of any security” (emphasis added).
Prosecutors are reluctant to charge securities fraud in insider trading or market manipulation cases involving digital assets because many digital assets are not even arguably securities and, where they might be, proving that element beyond a reasonable doubt to a lay jury would pose significant difficulty. For that reason, prosecutors often rely on the wire fraud statute in such cases, which is why the Second Circuit’s holding in Chastain is so significant.
Interpreting the Wire Fraud Statute
Section 1343 requires proof of three elements: (i) an existence of a scheme; (ii) to obtain money or property; (iii) by means of false or fraudulent pretenses or representations. 18 U.S.C. § 1343.
In wire fraud prosecutions, “money or property,” includes both “tangible” and “intangible” property rights. See Carpenter v. United States, 484 U.S. 19, 25 (1987). Moreover, in Carpenter, the U.S. Supreme Court recognized that an intangible property interest includes “confidential information acquired or compiled by a corporation in the course and conduct of its business is a species of property to which the corporation has the exclusive right and benefit, and which a court of equity will protect through the injunctive process or other appropriate remedy.” Id. at 25–26 (emphasis added) (finding a Wall Street Journal’s investment advice columnist misappropriated a property interest by using the Journal’s confidential information from that column before its publication).
In addition to Carpenter, the Supreme Court has analyzed other property interests implicated in wire fraud prosecutions. See, e.g., Ciminelli v. United States, 598 U.S. 306 (2023) (holding that the “right-to-control” theory, in this case the government’s ability to hold fair and impartial contract bidding processes, is not a cognizable property interest); Kelly v. United States, 590 U.S. 391 (2020) (finding that “commandeering” the Port Authority’s regulatory power, controlling its traffic lanes, is not a cognizable property interest); Cleveland v. United States 531 U.S. 12 (2000) (finding that a fraudulent scheme to obtain a state-issued video poker license did not implicate a property interest); McNally v. United States, 483 U.S. 350 (1987) (finding that a politician’s fraudulent scheme to receive kickbacks, which affected the citizens’ “intangible rights to honest and impartial government,” was not a property interest). Notwithstanding the Supreme Court’s frequent intervention on this issue, Chastain indicates there is still ambiguity over what constitutes a property interest.
The Second Circuit’s Approach
In Chastain, the Second Circuit analyzed whether “confidential business information,” without considering the value to the victim, is a sufficient property interest to sustain a conviction under Section 1343. Specifically, the defendant, responsible for choosing specific products (namely, NFTs) to be featured on his employer’s website, traded these NFTs prior to their feature on his employer’s website. See Chastain, 2025 WL 2165839, at *2. Whether the NFTs, the “company’s confidential business information,” satisfied the property element of Section 1343 was a question of fact for the jury. See id. at *4. Importantly, the trial court instructed the jury that “[t]he government is not required to prove that the information had [economic] value.” Id. Following an appeal from the defendant’s conviction, the Second Circuit disagreed. See id. at *5.
In contrast to the trial court, the Second Circuit found that “[c]onfidential business information must have commercial value to a company to qualify as its property under [Section 1343].” Chastain, 2025 WL 2165839, at *5 (2d Cir. July 31, 2025) (emphasis added). The court focused on whether “confidential business information” is a traditional property interest, as required by Supreme Court precedent, even if it does not have any commercial value to its holder. See id. at *6–8. In reaching its conclusion, the Second Circuit highlighted that “information cannot qualify as a traditional property interest if its holder has no economic interest in its exclusive use or in otherwise keeping the information confidential.” Id. at *7.
Practical Implications of United States v. Chastain
The Second Circuit’s position in Chastain is significant. In the Second Circuit, which notably encompasses the Southern District of New York (the financial and business hub of the world), wire fraud prosecutions for misappropriating confidential information must establish that the information at issue has commercial value to its owner. This new standard invites an increased level of subjectivity in wire fraud prosecutions, which may now routinely require the employ of economists or other financial expert witnesses and shift the focus to a “battle of the experts” in determining whether the victim’s confidential information held any commercial value. Moving forward, this holding may yet again offer another opportunity for the highly scrutinized statute to reach the Supreme Court. Nevertheless, criminal defendants in the Second Circuit can enjoy the benefits of the court’s opinion that, at least temporarily, increases the difficulty for wire fraud prosecutions of confidential business information.
For More Information
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