Trading on confidential information: the Chastain judgment and its implications for MEV

The Second Circuit's recent decision in United States v. Chastain[1] is a helpful illustration how U.S. courts approach the question of what constitutes "property" under wire fraud statutes in a crypto context — a question with potential implications for MEV law.[2] This decision follows another recent judicial developments relevant to MEV law: the partial victory of Avraham Eisenberg in his oracle manipulation case.[3] The appellate court vacated Nathaniel Chastain's conviction for wire fraud, holding that the district court erred by allowing the jury to convict him for trading on information that lacked commercial value to his employer, OpenSea. This reasoning bears parallels to the legal challenges facing certain MEV strategies, particularly sandwiching transactions, which — together with Natasha Vasan and Alex Sarch — we have analyzed extensively in our work on blockchain transaction ordering.[4]

The Chastain case: a brief overview

Chastain, while serving as OpenSea's head of product, selected NFTs to feature on the platform's homepage. When featured, these NFTs typically experienced price increases. Chastain purchased approximately fifteen NFTs before featuring them, then sold them afterward for a profit of about $57,000. The government prosecuted him for wire fraud, arguing that he misappropriated OpenSea's confidential business information.

The Second Circuit's reversal turned on a key distinction: not all confidential information qualifies as property under the wire fraud statute. The court held that information must have commercial value to the company to receive protection as a traditional property interest. Moreover, the court rejected jury instructions that would have allowed conviction based on conduct that merely "departed from traditional notions of fundamental honesty and fair play in the general and business life of society."[5]

The property requirement and its connection to MEV

The Chastain court's emphasis on commercial value as a prerequisite for property protection resonates with ongoing debates about MEV realization. In our analysis of sandwiching — a MEV strategy where traders insert transactions before and after a target transaction to profit from price movements — we similarly grapple with whether certain market advantages constitute legitimate property interests or merely positional advantages arising from technical infrastructure.[6]

Consider the parallel: Chastain knew which NFTs would be featured (informational advantage), while MEV searchers know the order in which transactions will be included in a block (positional advantage). The Second Circuit found that OpenSea's featured NFT information was "so tangential to OpenSea's business that failing to maintain the confidentiality of the featured NFTs would not affect users' attitudes toward the platform."[7]

Similarly, one might argue that a hope, or prediction, that one's transaction will be included in a specific position on a public blockchains doesn't constitute a relevant property interest. The user's pending transaction in the public mempool is just an expressed intent to trade, not a vested property right to a particular outcome. A counterfactual potential for a better price in a trade is an opportunity, not "property in the victim's hands" as required by the fraud statutes.[8]

Trust relationships and private order flow

The court's analysis becomes particularly relevant when considering private order flow in DeFi markets. The Chastain opinion emphasized that OpenSea did not charge for featuring NFTs, collected only its standard 2.5% fee regardless of which NFT was featured, and that the selection process involved public input. These factors suggested the information lacked commercial significance to OpenSea.

By contrast, private order flow arrangements in DeFi — where users submit transactions through private mempools or relay services — are more likely to involve explicit trust relationships with clear commercial implications. As I and my co-authors have argued elsewhere, sandwiching private transactions involves "a heightened trust relationship" that more closely resembles traditional fiduciary duties.[9] The Chastain court's framework suggests that information about private order flow would more readily qualify as property because maintaining its confidentiality has direct commercial value to the parties involved.

The "fundamental honesty" standard and rejection of the moralized lens

Perhaps most intriguing is the Second Circuit's rejection of the "fundamental honesty and fair play" standard for wire fraud. The court warned that such a standard would "vastly expand federal jurisdiction without statutory authorization" by criminalizing "an almost limitless variety of deceptive actions traditionally left to state contract and tort law."[10]

This rejection is particularly significant when considered alongside our analysis of sandwiching through what we termed a "moralized lens." In our blockchain transaction ordering paper, we argued that there exists "a route for courts that adopt a moralized lens, focused on behavior that exploits privileged control over financial infrastructure, to find sandwiching impermissibly manipulative."[11] We suggested that courts engaged in moralized reasoning might view sandwichers' exploitation of their control over blockspace as creating illegitimate price effects—particularly when considering arguments about market dominance and conflicts of interest.

The Chastain decision, however, demonstrates a court explicitly rejecting such moralized reasoning. The Second Circuit refused to allow conviction based on conduct that "departed from traditional notions of fundamental honesty and fair play" — precisely the kind of moral standard that might support finding sandwiching manipulative based on fairness concerns rather than traditional property violations. This suggests that future courts may be reluctant to adopt the moralized lens we identified as a potential route to liability for MEV strategies.

This has significant implications for MEV-related enforcement actions. Regulators and plaintiffs tend to characterize strategies like sandwiching as inherently unfair or manipulative, arguing they violate general notions of market integrity. Yet the Chastain court's analysis suggests that mere deviation from idealized market behavior — without invasion of a traditional property interest — cannot support fraud liability.

In our examination of whether sandwiching constitutes market manipulation under Rule 10b-5 and CFTC Rule 180.1, we found that sandwichers typically do not mislead sandwiched users, who set slippage tolerances and are (or should be) aware of MEV risks.[12] The Chastain decision reinforces this analysis: if users understand and accept the technical realities of how blockchains operate, including the possibility of transaction reordering, then MEV realization may not involve the appropriation of any property interest at all.

Artificial prices and legitimate market forces

The Chastain court's discussion of property rights connects to another important aspect of MEV analysis: whether sandwich trades create "artificial" prices. Under commodities and securities law, price manipulation requires showing that prices do not reflect legitimate forces of supply and demand.[13]

The Second Circuit noted that - given the legally erroenous directions it received - the jury could have convicted Chastain even if OpenSea viewed the featured NFT information as having no commercial importance, merely because his conduct seemed unethical. This distinction — between unethical conduct and illegal appropriation of property — mirrors the challenge in MEV cases of distinguishing between legitimate (if aggressive) trading strategies and impermissible manipulation.

Standard economically rational sandwiches, where the back-run fully reverses the front-run, arguably do not create lasting artificial prices. As we have shown, such sandwiches are market-neutral strategies that exploit temporary price dislocations rather than creating false market signals.[14] The Chastain framework suggests that without appropriating something that qualifies as property — such as truly confidential order flow information with commercial value — such strategies may not constitute fraud even if they seem unfair to affected users.

What's next?

The key insight from Chastain is that courts will scrutinize whether allegedly misappropriated advantages actually constitute traditional property interests with commercial value. For public blockchain transactions visible in the mempool, establishing such property interests may prove challenging. The information about transaction ordering, like OpenSea's featured NFT selections, could be viewed by future courts as lacking the commercial significance necessary for property protection.

The Chastain decision suggests that successful prosecution of MEV strategies will require more than showing they depart from idealized notions of fair trading. Prosecutors must establish either: (1) appropriation of information with genuine commercial value to its holder, or (2) manipulation through deceptive practices that go beyond merely exploiting positional advantages.

This does not mean all MEV strategies escape legal scrutiny. Oracle manipulation, where traders deliberately distort price feeds that smart contracts rely upon, presents clearer grounds for liability. As I have discussed in my analysis of the Eisenberg case, courts may find manipulation even without explicit misrepresentations when traders use "manipulative devices" to artificially affect prices.[15] Notably, however, Eisenberg's acquittal on wire fraud charges while being found to have engaged in manipulation reinforces the Chastain principle: fraud requires more than exploiting market mechanics—it requires appropriation of property or explicit deception.

This framework may push MEV governance toward technical rather than legal solutions. If transaction ordering on public blockchains does not constitute property, then addressing MEV may require redesigning protocols rather than prosecuting traders. Alternatively, it may encourage development of private order flow systems with explicit contractual protections.

  1. United States v. Chastain, No. 23-7038 (2d Cir. July 31, 2025). ↩︎

  2. See my MEV law page. ↩︎

  3. See my analysis at MEV law after Avi Eisenberg's partial victory (discussing the implications of Eisenberg's acquittal on wire fraud charges while being found to have engaged in manipulation). ↩︎

  4. Mikołaj Barczentewicz, Alex Sarch & Natasha Vasan, "Blockchain Transaction Ordering as Market Manipulation" (2023) 20 Ohio State Technology Law Journal 1. ↩︎

  5. Chastain, slip op. at 20-21. ↩︎

  6. Barczentewicz et al., supra note 4, at 41-65 (analyzing sandwiching public transactions under market manipulation law). ↩︎

  7. Chastain, slip op. at 23. ↩︎

  8. Cleveland v. United States, 531 U.S. 12, 15 (2000) (requiring that the object of fraud be "property in the victim's hands"); see also Chastain, slip op. at 13-14 (citing Cleveland, 531 U.S. at 26-27). ↩︎

  9. Barczentewicz et al., supra note 4, at 65-74. ↩︎

  10. Chastain, slip op. at 21. ↩︎

  11. Barczentewicz et al., supra note 4, at 3; see also id. at 52-57 (discussing the "moralized form of inquiry" courts might adopt when evaluating whether sandwiching creates artificial prices). ↩︎

  12. Barczentewicz et al., supra note 4, at 47-49. ↩︎

  13. Id. at 27-31. ↩︎

  14. Id. at 49-52. ↩︎

  15. See MEV law after Avi Eisenberg's partial victory; see also Barczentewicz et al., supra note 4, at 74-79 (analyzing oracle manipulation as a form of covered open-market manipulation). ↩︎