by James Joseph Benjamin Jr., Katherine R. Goldstein, Michael A. Asaro, and Parvin Daphne Moyne
Left to proper: James Joseph Benjamin Jr., Katherine R. Goldstein, Michael A. Asaro, and Parvin Daphne Moyne (images courtesy of Akin Gump Strauss Hauer & Feld LLP)
In two current high-profile choices, Chastain v. United States and Johnson v. United States, the U.S. Court docket of Appeals for the Second Circuit reversed wire fraud convictions that have been primarily based on theories resembling insider buying and selling.[1] In each circumstances, the federal government invoked the wire fraud statute, and never a securities fraud statute, as a result of the merchandise at difficulty (non-fungible tokens and spot international forex) weren’t securities. These circumstances mark the most recent developments in a long-running, ongoing and typically head-spinning debate within the courts in regards to the breadth of the federal property fraud statutes.
In Chastain, the courtroom held that confidential enterprise data obtained by an worker that lacks business worth to the employer isn’t a “conventional property curiosity” beneath the wire fraud statute. This resolution will be seen as a logical extension of United States v. Blaszczak, a Second Circuit resolution from 2022, which held that confidential authorities data was not property for functions of the federal fraud statutes as a result of the knowledge didn’t have business worth to the federal government. The Chastain majority additionally criticized a unique jury instruction administered by the district courtroom—which permitted the jury to convict the defendant if he “carried out himself in a fashion that departed from conventional notions of elementary honesty and honest play within the normal and enterprise lifetime of society”—as overbroad as a result of this language would successfully criminalize nearly any misleading act.
In Johnson, the defendant was convicted of wire fraud primarily based on various theories that: (a) he defrauded a buying and selling counterparty of its “proper to manage” the usage of its property; and (b) he misappropriated confidential data from the counterparty. In a current resolution, the Second Circuit granted exceedingly uncommon coram nobis aid as a result of, after the “proper to manage” concept was invalidated in Ciminelli v. United States, the proof of misappropriation was too weak to maintain the conviction. The courtroom emphasised that the misappropriation concept of fraud requires a “pre-existing fiduciary or quasi-fiduciary relationship” and proof of “management and dominance” over the alleged sufferer’s affairs.
These choices, which come from the nation’s main appellate courtroom within the space of economic crime prosecutions, illustrate the continuing challenges of imposing predictable and workable limitations in order that the federal government doesn’t have the facility to jail folks for aggressive or unethical enterprise practices that don’t quantity to federal property fraud. In addition they spotlight rising traces of protection for people topic to prosecution beneath the federal property and securities fraud statutes.
Nevertheless, even because the Second Circuit has pared again features of federal property fraud, the Supreme Court docket seems to have opened a brand new avenue of prosecutions in its current resolution in Kousisis v. United States, which authorised the “fraudulent inducement” concept of federal property fraud.[2] Kousisis cuts towards the grain of many different Supreme Court docket choices previously era, every of which curtailed the scope of the federal fraud statutes to keep away from sweeping criminalization of a variety of misleading acts. Though the implications of Kousisis stay to be seen, the newly-approved fraudulent inducement concept seems, on its face, to be doubtlessly expansive.
OpenSea is the biggest market for non-fungible tokens (NFTs), that are digital property recorded and traded on the blockchain which are usually related to artwork, memorabilia and different media. Nathaniel Chastain, the pinnacle of product at OpenSea on the time, chosen NFTs to be featured on the homepage of the web site. An NFT featured on OpenSea’s homepage usually would see greater demand in buying and selling, leading to elevated worth. Chastain, like different OpenSea staff, signed a confidentiality settlement overlaying data he discovered by way of his employment. Chastain bought a number of NFTs earlier than they have been featured on the web site’s entrance web page, promoting them after itemizing for a revenue of roughly $57,000.
In 2022, the U.S. Lawyer’s Workplace for the Southern District of New York indicted Chastain for wire fraud and cash laundering, nevertheless it didn’t allege a violation of the federal securities legal guidelines, thereby avoiding a requirement to show that the NFTs he traded have been securities. At trial, the prosecution contended that Chastain had misappropriated OpenSea’s confidential enterprise data by buying NFTs forward of the general public announcement of their listings. Chastain was convicted following a jury trial and sentenced to 3 months’ imprisonment and three years of supervised launch.
A divided panel of the Second Circuit vacated Chastain’s conviction and remanded the case to the district courtroom, holding that the jury had been erroneously instructed that it may discover Chastain responsible of wire fraud if: (1) the knowledge he allegedly misappropriated didn’t have financial worth to OpenSea and (2) he “carried out himself in a fashion that departed from the normal notions of elementary honesty and honest play within the normal and enterprise lifetime of society.”
Relating to the primary jury instruction, the bulk emphasised that the wire fraud statute covers solely conventional property pursuits, and that not all confidential data qualifies as such.[3] The bulk adopted a slim studying of the Supreme Court docket’s seminal insider buying and selling resolution in Carpenter v. United States and held that an organization’s confidential enterprise data is taken into account “property” for functions of the wire fraud statute provided that the knowledge has financial worth to the corporate.[4] Though OpenSea’s homepage choice course of tended to have an effect on the worth of NFTs that have been featured on the homepage, the choice course of didn’t lead to any income or different financial worth for OpenSea, which merely collected an ordinary 2.5% fee on every NFT transaction.[5] At trial, some OpenSea staff testified that the corporate may doubtlessly endure reputational hurt if there have been insider buying and selling of featured NFTs, however the Second Circuit discovered that this was inadequate to represent a property curiosity beneath the wire fraud statute.[6]
In its 2022 resolution in Blaszczak, the Second Circuit vacated wire fraud convictions of defendants who misappropriated confidential authorities data from CMS, the federal company that handles Medicare reimbursement, after which used the knowledge to make worthwhile securities trades. In a previous attraction in 2019, the Second Circuit had affirmed the Blaszczak convictions, however three years later—after an intervening Supreme Court docket resolution in Kelly v. United States—the federal government confessed error, and the Second Circuit vacated the convictions over a dissent from Decide Sullivan.[7] The 2022 Blaszczak majority concluded that the federal government data at difficulty within the case didn’t represent “property” beneath the wire fraud statute as a result of “CMS isn’t a business entity; it doesn’t promote, or provide on the market, a service or product” and since the disclosure of CMS’s confidential data “has no direct influence on the federal government’s fisc.”[8] Decide Sullivan wrote a strongly-worded dissent arguing that confidential data had lengthy been acknowledged as “property” beneath the federal fraud statutes no matter whether or not it had inherent business or financial worth.[9]
With respect to the second challenged jury instruction—which invoked “conventional notions of elementary honesty and honest play within the normal and enterprise lifetime of society”—the bulk traced the language again to appellate choices from the Sixties and Nineteen Seventies that have been a part of “a federal, common-law fiduciary responsibility” that was later invalidated in McNally v. United States.[10] The Chastain majority was extremely essential of this open-ended idea of a federal fiduciary responsibility, which it said would threat a major growth of legal legal responsibility for federal fraud: “If the wire fraud statute criminalized conduct that merely departed from conventional notions of elementary honesty and honest play, ‘nearly any misleading act might be legal,’” a situation that “would ‘vastly broaden[] federal jurisdiction with out statutory authorization’ by ‘mak[ing] a federal crime of an nearly limitless number of misleading actions historically left to state contract and tort regulation.’”[11] Though white collar protection attorneys will certainly welcome this a part of the Chastain opinion, it bears noting that Decide Cabranes in dissent expressed the view that the challenged jury instruction was per longstanding circuit precedent.[12]
The Johnson case arose from a posh international change (FX) transaction that occurred in 2011. A British power firm, Cairn Vitality, deliberate to promote an abroad subsidiary for roughly $4 billion and wished to transform the proceeds from U.S. {dollars} to British kilos sterling (GBP).[13] After an intensive choice course of led by Cairn’s funding banker at Rothschild & Co., Cairn engaged HSBC to deal with the transaction, which was to be priced at a benchmark stage printed by a 3rd social gathering pricing service, WM/Reuters, at a time chosen by Cairn. Cairn agreed to provide HSBC two hours’ advance discover of the actual pricing stage, or “repair,” at which the transaction could be priced.[14] In the course of the negotiations, Johnson instructed a Rothschild banker that HSBC would buy GBP within the interval main as much as the repair, however allegedly promised that it will achieve this “quietly” to keep away from extreme upward strain or “ramping” of the market worth main into the repair.[15] Within the hours and minutes main as much as the repair, HSBC bought GBP in anticipation of the Cairn transaction, which had the impact of driving up the spot worth of GBP and lowering the quantity of GBP that Cairn would in the end obtain.[16] After the transaction, Cairn inquired in regards to the improve within the worth of GBP within the hour earlier than the transaction was priced. In response, Johnson falsely cited purported exercise by the Russian Central Financial institution.[17]
Johnson was indicted by the U.S. Lawyer’s Workplace for the Jap District of New York on wire fraud prices, and was convicted and sentenced to 2 years in jail, which he served. At trial, the district courtroom instructed the jury on two various theories of wire fraud: (a) that Johnson—by representing that HSBC would buy GBP “quietly” and wouldn’t ramp the repair however later shopping for GBP in enough amount to trigger the market worth to rise forward of the repair—defrauded Cairn by depriving it of “data needed to permit it to make discretionary financial choices” (the right-to-control concept); and (b) that Johnson misappropriated Cairn’s confidential data, in breach of an obligation of belief and confidence owed to Cairn, and used the misappropriated data to generate secret earnings for HSBC by ramping the repair.[18]
In an preliminary attraction, determined in 2019, the Second Circuit affirmed Johnson’s conviction beneath the right-to-control concept and didn’t deal with the misappropriation concept. Subsequently, nonetheless, in Ciminelli v. United States, the Supreme Court docket unanimously invalidated the right-to-control concept—which had been a mainstay of mail and wire fraud prosecutions within the Second Circuit for many years—on grounds that the intangible “proper to beneficial financial data wanted to make discretionary financial choices isn’t a conventional property curiosity” throughout the which means of the federal fraud statutes.[19]
Within the wake of Ciminelli, Johnson sought post-conviction aid through the rarely-granted writ of coram nobis, and the Second Circuit not too long ago granted the writ as a result of the proof of misappropriation, standing alone, was inadequate to maintain the conviction.[20]
Within the Johnson prosecution, the misappropriation concept was primarily based on the proposition that HSBC turned Cairn’s fiduciary, which, because the courtroom famous, requires “‘de facto management and dominance’ by the agent over the principal’s affairs” and that the agent transact “‘not for his personal profit, however for the good thing about one other.’”[21] Reviewing the proof, the Second Circuit positioned nice emphasis on the truth that HSBC had entered right into a written contract with Cairn which said that: (a) HSBC wouldn’t function Cairn’s agent and would as a substitute transact with Cairn on a principal foundation; (b) HSBC disclaimed any position as Cairn’s funding or monetary advisor; (c) Cairn was chargeable for making its personal unbiased choices concerning the transaction; and (d) HSBC was not performing as a fiduciary for Cairn.[22] The courtroom held that though it’s “legally attainable” for a celebration to kind a “de facto fiduciary relationship however a purported contractual disclaimer of such a relationship, … the proof for such a fiduciary relationship would have to be fairly robust and the jury cost fairly clear,” and {that a} factfinder “should start from the presumption that no fiduciary responsibility exists, and solely the strongest parol proof {that a} defendant intentionally created a quasi-fiduciary relationship can suffice to override that presumption.”[23]
In an try to beat the presumption, the federal government pointed to a separate non-disclosure settlement (NDA) that HSBC entered into with Cairn and argued that the “NDA counteracted the contractual disclaimer in a roundabout way and created an unbiased fiduciary responsibility.”[24] The Second Circuit rejected this argument, discovering that the NDA was merely “one other piece of parol proof” and that it was inadequate to beat the contractual disclaimer of any fiduciary relationship between HSBC and Cairn.[25]
In Kousisis, the Supreme Court docket upheld the conviction of a enterprise proprietor who obtained two high-value portray contracts from a Pennsylvania state company by falsely certifying the participation of a deprived enterprise. Despite the fact that the state company acquired exactly the providers for which it bargained—a reality sample that’s strikingly just like the now-discredited “proper to manage” concept of wire fraud—the Supreme Court docket upheld the conviction on grounds that the defendant had fraudulently induced the state company to enter into the contract within the first place.[26] The defendant argued that he couldn’t be convicted of federal property fraud as a result of the state company “acquired the total financial advantage of its cut price,” however the Supreme Court docket rejected this argument on grounds that neither the statutory textual content nor the widespread regulation antecedents of the statute require proof of financial loss to the sufferer.[27]
Kousisis casts doubt on many years of Second Circuit case regulation that has lengthy imposed an intent-to-harm requirement as a solution to keep away from overbroad utility of the wire fraud statute. See, e.g., United States v. Regent Workplace Provide Co., 421 F.second 1174 (second Cir. 1970); United States v. Starr, 816 F.second 94 (second Cir. 1987); and United States v. Shellef, 507 F.3d 82 (second Cir. 2007). Writing individually, Justices Gorsuch and Sotomayor highlighted the priority that the fraudulent inducement concept dangers an entire new wave of overbroad prosecutions that might flip “prosecutors and courts into morality police with a fee to prosecute and punish innocent lies.”[28] The assorted opinions in Kousisis pointed to the “demanding” materiality ingredient as a way to forestall overbroad utility of the fraudulent inducement concept, and several other justices proffered alternative ways to conceptualize materiality on this context, however the Court docket didn’t set up a concrete materiality customary that may readily be translated into jury directions, portending future litigation on that query.[29]
The textual content of the wire fraud statute is deceptively easy: it criminalizes “any scheme or artifice to defraud, or for acquiring cash or property by way of false of fraudulent pretenses, representations, or guarantees” by which there was an interstate wire transmission. 18 U.S.C. § 1343. And but, because the foregoing dialogue demonstrates, for greater than three many years, this statutory language has led to aggressive prosecutions, overturned convictions and complications for attorneys and judges—with a wealthy historical past of flip-flops, divided choices and nuanced distinctions within the case regulation. The current choices in Chastain, Johnson and Kousisis provide a number of key takeaways:
- With respect to insider buying and selling, itself a extremely advanced space of regulation that’s addressed by the wire fraud statute in addition to two separate securities fraud statutes (with completely different parts) in Titles 18 and 15 of the U.S. Code, Chastain creates symmetry with Blaszczak in order that any misappropriation case should now relaxation on data that has business worth to the entity from which it was misappropriated—no matter whether or not that entity is a authorities company or a private-sector enterprise. These authorized developments will probably give the federal government pause when charging insider buying and selling circumstances the place the misappropriated data at difficulty is novel in some respect, which might be significantly helpful in circumstances involving digital property.
- For its half, Johnson incorporates useful language emphasizing the strict proof necessities to ascertain a fiduciary responsibility and means that the federal government may have a tough time pursuing misappropriation circumstances if there’s a contractual disclaimer of any company relationship. It stays to be seen how prosecutors and courts will apply these rules to securities fraud circumstances introduced beneath SEC Rule 10b5-2, which states that “an obligation of belief or confidence” exists for functions of misappropriation insider buying and selling circumstances at any time when “an individual agrees to take care of data in confidence.”[30] This regulation appears in rigidity with a few of the language in Johnson, which didn’t give a lot weight to the existence of an NDA in gentle of the opposite proof within the case. Johnson may give practitioners ammunition in circumstances involving 10b5-2 breaches, significantly in gentle of the Supreme Court docket’s current disfavoring of prosecution by regulation.
- With respect to wire fraud extra broadly, Chastain presents two traces of protection that might be useful for practitioners: the commercial-value requirement and the emphatic rejection of anachronistic jury directions that talk of “elementary honesty and honest play within the normal and enterprise lifetime of society.” On this regard, Chastain is in sync with most of the Supreme Court docket’s current choices narrowing the scope of the federal property fraud statutes—together with Cleveland, Skilling, Kelly and Ciminelli—all of which replicate judicial discomfort with the specter of broad-ranging federal legal prosecutions primarily based on unethical enterprise practices or breaches of fiduciary responsibility.
- Nevertheless, even because the Supreme Court docket has narrowed the scope of the federal fraud statutes, its current resolution in Kousisis may result in a brand new wave of expansive wire and mail fraud investigations and prosecutions alongside the traces of the “right-to-control” circumstances that bedeviled defendants and protection counsel for years. In response to issues that the fraudulent-inducement concept may result in overbroad enforcement, the Kousisis Court docket emphasised the necessity for a “‘demanding’ materiality requirement” that it predicted will “considerably slim[] the universe of actionable misrepresentations.”[31] Practitioners who’re acquainted with how the materiality requirement usually performs out with juries are prone to be much less sanguine. If the federal government is ready to articulate a fraudulent inducement concept that’s not a right-to-control concept in disguise, which ought to be tough, an important bulwark towards overly-expansive fraud prosecutions is a strong jury instruction on the essential ingredient of fraudulent intent, together with liberal use of the defense-friendly good-faith instruction at any time when an evidentiary predicate has been established.
[1] United States v. Chastain, No. 23-7038 (second Cir. July 31, 2025) and Johnson v. United States, No. 24-1221 (second Cir. July 17, 2025).
[2] 145 S. Ct. 1382 (2025).
[3] Chastain, slip op. at 14-15.
[4] Id. at 23-24. In Carpenter, 484 U.S. 19 (1987), the Supreme Court docket upheld a wire fraud conviction for insider buying and selling primarily based on a Wall Road Journal reporter’s misappropriation of pre-publication information articles in order that his co-conspirators may purchase or promote securities earlier than the articles have been printed, with the expectation of incomes buying and selling earnings primarily based on anticipated actions within the inventory worth of corporations featured within the articles. The Carpenter Court docket held that the unpublished information articles have been property, for functions of the wire fraud statute, as a result of they have been the Journal’s “inventory in commerce, to be gathered at the price of enterprise, group, talent, labor, and cash, and to be distributed and offered to those that can pay cash for it, as for another merchandise.” Carpenter, 484 U.S. at 25-26.
[5] Chastain, slip op. at 23.
[6] Id. The courtroom contrasted the very fact sample in Chastain with United States v. Grossman, 843 F.second 78, 86 (second Cir. 1988), by which a regulation agency affiliate misappropriated confidential consumer data. In Grossman, a number of companions of the regulation agency testified that the agency would lose purchasers if its attorneys didn’t keep the confidentiality of consumer data.
[7] United States v. Blaszczak, 56 F.4th 230 (second Cir. 2022) (“Blaszczak II”); see additionally United States v. Blaszczak, 947 F.3d 19 (second Cir. 2019).
[8] Blaszczak II, 56 F.4th at 243-44. The Second Circuit analogized CMS’s medicare-reimbursement plans to a “the federal government’s regulatory rights of ‘allocation, exclusion, and management,’” which the Supreme Court docket held have been outdoors the definition of “property” in Kelly, 590 U.S. 391 (2020), and Cleveland v. United States, 531 U.S. 12, 15-16 (2000). Id. at 235, 243-44. In Cleveland, the defendant was convicted of mail fraud primarily based on false statements in an utility for a license to function video poker machines in Louisiana. The Supreme Court docket unanimously reversed the conviction on grounds that the video poker license was not “property” beneath the mail fraud statute. Id. at 374. The Court docket reasoned that the license, a part of a state regulatory program, was an train of “conventional police powers,” was not offered “within the odd business sense” and implicated Louisiana’s “position as sovereign, not as property holder.” Id. at 372-73. In Kelly, the defendant was convicted of wire fraud primarily based on a scheme to trigger a site visitors jam on the George Washington Bridge to actual political retribution on the mayor of Fort Lee, New Jersey, who had declined to help then-Governor Chris Christie. 590 U.S. at 393. The Supreme Court docket unanimously threw out the conviction on grounds that entry to the bridge was not “property” and was as a substitute an train of state regulatory energy, as in Cleveland. Id. at 393-94, 400-01.
[9] Blaszczak II, 56 F.4th at 252-57.
[10] Chastain, slip op. at 21-22 (quoting Skilling v. United States, 561 U.S. 358, 416-18 (2010) (Scalia, J., concurring partly and concurring within the judgment). In McNally, 483 U.S. 350, the Supreme Court docket held that the mail fraud statute didn’t prolong to schemes to deprive somebody of the intangible proper to trustworthy providers. In 1988, Congress legislatively overruled McNally by enacting 18 U.S.C. § 1346, which offers that “the time period ‘scheme or artifice to defraud’ features a scheme or artifice to deprive one other of the intangible proper of trustworthy providers.” In 2010, after years of controversy over the correct building of this statutory language, the Supreme Court docket adopted a limiting precept beneath which honest-services prosecutions have to be primarily based on a kickback or bribe and never an open-ended breach of fiduciary responsibility. Skilling, 561 U.S. 358, 408-09.
[11] Chastain, slip op. at 21 (quoting Ciminelli v. United States, 598 U.S. 306, 315 (2023)).
[12] Chastain, slip. op. at 4-5 (Cabranes, J., dissenting).
[13] United States v. Johnson, 945 F.3d 606, 608-08 (second Cir. 2019) (“Johnson I”).
[14] Id. at 609-10.
[15] Id. at 609.
[16] Id. at 610. The federal government characterised this exercise—which many observers would take into account to be regular and needed risk-management exercise that’s inherent in any massive FX transaction priced on the repair—in pejorative phrases as “ramping the repair,” a characterization that was accepted by the Second Circuit. See id. at 613-14.
[17] Id. at 611.
[18] Id. at 611.
[19] 598 U.S. at 316.
[20] Johnson v. United States, No. 24-1221, slip op. at 29 (second Cir. July 17, 2025) (“Johnson II”).
[21] Id. at 22-23 (quoting United States v. Skelly, 442 F.3d 94, 98-99 (second Cir. 2006), and Black’s Regulation Dictionary 564 (5thed. 1979)).
[22] Johnson II, slip op. at 11-12, 23. The contract integrated language from the usual ISDA Grasp Settlement that was in place between HSBC and Cairn, together with non-reliance language and an specific acknowledgment that neither social gathering was a fiduciary for the opposite.
[23] Id. at 24.
[24] Johnson, slip op. at 24-25 n.4.
[25] Id.
[26] Kousisis, 145 S. Ct. 1382, 1388. “Beneath the fraudulent inducement concept, a defendant commits federal fraud at any time when he makes use of a cloth misstatement to trick a sufferer right into a contract that requires handing over her cash or property – no matter whether or not the fraudster, who usually offers one thing in return, seeks to trigger the sufferer internet pecuniary loss.” Id. In Kousisis, the Court docket famous that the federal government had urged affirmance in Ciminelli on a fraudulent inducement concept, however that this concept had not been offered to the jury. Id. at 1398. In gentle of Kousisis, it appears extremely probably that the Court docket would have confirmed the conviction in Ciminelli had the case been prosecuted beneath a fraudulent inducement concept versus a right-to-control concept.
[27] Id. at 1390-96.
[28] Id. at 1407 (Gorsuch, J., concurring partly and concurring within the judgment); see additionally id. at 1412 (Sotomayor, J., concurring).
[29] See id. at 1398 (majority opinion); see additionally id. at 1399-1405 (Thomas, J., concurring); id. at 1409-10 (Gorsuch, J., concurring partly and concurring within the judgment); id. at 1412-15 (Sotomayor, J., concurring).
[30] 17 C.F.R. § 240.10b5-2(b)(1).
[31] Id. at 1398.
James Joseph Benjamin Jr., Katherine R. Goldstein, Michael A. Asaro, and Parvin Daphne Moyne are Companions at Akin Gump Strauss Hauer & Feld LLP. Peter I. Altman, a Companion at Akin Gump, additionally contributed to this text. This submit first appeared as a consumer alert for the agency.
The views, opinions and positions expressed inside all posts are these of the writer(s) alone and don’t signify these of the Program on Company Compliance and Enforcement (PCCE) or of the New York College Faculty of Regulation. PCCE makes no representations as to the accuracy, completeness and validity or any statements made on this web site and won’t be liable any errors, omissions or representations. The copyright of this content material belongs to the writer(s) and any legal responsibility as regards to infringement of mental property rights stays with the writer(s).
by James Joseph Benjamin Jr., Katherine R. Goldstein, Michael A. Asaro, and Parvin Daphne Moyne
Left to proper: James Joseph Benjamin Jr., Katherine R. Goldstein, Michael A. Asaro, and Parvin Daphne Moyne (images courtesy of Akin Gump Strauss Hauer & Feld LLP)
In two current high-profile choices, Chastain v. United States and Johnson v. United States, the U.S. Court docket of Appeals for the Second Circuit reversed wire fraud convictions that have been primarily based on theories resembling insider buying and selling.[1] In each circumstances, the federal government invoked the wire fraud statute, and never a securities fraud statute, as a result of the merchandise at difficulty (non-fungible tokens and spot international forex) weren’t securities. These circumstances mark the most recent developments in a long-running, ongoing and typically head-spinning debate within the courts in regards to the breadth of the federal property fraud statutes.
In Chastain, the courtroom held that confidential enterprise data obtained by an worker that lacks business worth to the employer isn’t a “conventional property curiosity” beneath the wire fraud statute. This resolution will be seen as a logical extension of United States v. Blaszczak, a Second Circuit resolution from 2022, which held that confidential authorities data was not property for functions of the federal fraud statutes as a result of the knowledge didn’t have business worth to the federal government. The Chastain majority additionally criticized a unique jury instruction administered by the district courtroom—which permitted the jury to convict the defendant if he “carried out himself in a fashion that departed from conventional notions of elementary honesty and honest play within the normal and enterprise lifetime of society”—as overbroad as a result of this language would successfully criminalize nearly any misleading act.
In Johnson, the defendant was convicted of wire fraud primarily based on various theories that: (a) he defrauded a buying and selling counterparty of its “proper to manage” the usage of its property; and (b) he misappropriated confidential data from the counterparty. In a current resolution, the Second Circuit granted exceedingly uncommon coram nobis aid as a result of, after the “proper to manage” concept was invalidated in Ciminelli v. United States, the proof of misappropriation was too weak to maintain the conviction. The courtroom emphasised that the misappropriation concept of fraud requires a “pre-existing fiduciary or quasi-fiduciary relationship” and proof of “management and dominance” over the alleged sufferer’s affairs.
These choices, which come from the nation’s main appellate courtroom within the space of economic crime prosecutions, illustrate the continuing challenges of imposing predictable and workable limitations in order that the federal government doesn’t have the facility to jail folks for aggressive or unethical enterprise practices that don’t quantity to federal property fraud. In addition they spotlight rising traces of protection for people topic to prosecution beneath the federal property and securities fraud statutes.
Nevertheless, even because the Second Circuit has pared again features of federal property fraud, the Supreme Court docket seems to have opened a brand new avenue of prosecutions in its current resolution in Kousisis v. United States, which authorised the “fraudulent inducement” concept of federal property fraud.[2] Kousisis cuts towards the grain of many different Supreme Court docket choices previously era, every of which curtailed the scope of the federal fraud statutes to keep away from sweeping criminalization of a variety of misleading acts. Though the implications of Kousisis stay to be seen, the newly-approved fraudulent inducement concept seems, on its face, to be doubtlessly expansive.
OpenSea is the biggest market for non-fungible tokens (NFTs), that are digital property recorded and traded on the blockchain which are usually related to artwork, memorabilia and different media. Nathaniel Chastain, the pinnacle of product at OpenSea on the time, chosen NFTs to be featured on the homepage of the web site. An NFT featured on OpenSea’s homepage usually would see greater demand in buying and selling, leading to elevated worth. Chastain, like different OpenSea staff, signed a confidentiality settlement overlaying data he discovered by way of his employment. Chastain bought a number of NFTs earlier than they have been featured on the web site’s entrance web page, promoting them after itemizing for a revenue of roughly $57,000.
In 2022, the U.S. Lawyer’s Workplace for the Southern District of New York indicted Chastain for wire fraud and cash laundering, nevertheless it didn’t allege a violation of the federal securities legal guidelines, thereby avoiding a requirement to show that the NFTs he traded have been securities. At trial, the prosecution contended that Chastain had misappropriated OpenSea’s confidential enterprise data by buying NFTs forward of the general public announcement of their listings. Chastain was convicted following a jury trial and sentenced to 3 months’ imprisonment and three years of supervised launch.
A divided panel of the Second Circuit vacated Chastain’s conviction and remanded the case to the district courtroom, holding that the jury had been erroneously instructed that it may discover Chastain responsible of wire fraud if: (1) the knowledge he allegedly misappropriated didn’t have financial worth to OpenSea and (2) he “carried out himself in a fashion that departed from the normal notions of elementary honesty and honest play within the normal and enterprise lifetime of society.”
Relating to the primary jury instruction, the bulk emphasised that the wire fraud statute covers solely conventional property pursuits, and that not all confidential data qualifies as such.[3] The bulk adopted a slim studying of the Supreme Court docket’s seminal insider buying and selling resolution in Carpenter v. United States and held that an organization’s confidential enterprise data is taken into account “property” for functions of the wire fraud statute provided that the knowledge has financial worth to the corporate.[4] Though OpenSea’s homepage choice course of tended to have an effect on the worth of NFTs that have been featured on the homepage, the choice course of didn’t lead to any income or different financial worth for OpenSea, which merely collected an ordinary 2.5% fee on every NFT transaction.[5] At trial, some OpenSea staff testified that the corporate may doubtlessly endure reputational hurt if there have been insider buying and selling of featured NFTs, however the Second Circuit discovered that this was inadequate to represent a property curiosity beneath the wire fraud statute.[6]
In its 2022 resolution in Blaszczak, the Second Circuit vacated wire fraud convictions of defendants who misappropriated confidential authorities data from CMS, the federal company that handles Medicare reimbursement, after which used the knowledge to make worthwhile securities trades. In a previous attraction in 2019, the Second Circuit had affirmed the Blaszczak convictions, however three years later—after an intervening Supreme Court docket resolution in Kelly v. United States—the federal government confessed error, and the Second Circuit vacated the convictions over a dissent from Decide Sullivan.[7] The 2022 Blaszczak majority concluded that the federal government data at difficulty within the case didn’t represent “property” beneath the wire fraud statute as a result of “CMS isn’t a business entity; it doesn’t promote, or provide on the market, a service or product” and since the disclosure of CMS’s confidential data “has no direct influence on the federal government’s fisc.”[8] Decide Sullivan wrote a strongly-worded dissent arguing that confidential data had lengthy been acknowledged as “property” beneath the federal fraud statutes no matter whether or not it had inherent business or financial worth.[9]
With respect to the second challenged jury instruction—which invoked “conventional notions of elementary honesty and honest play within the normal and enterprise lifetime of society”—the bulk traced the language again to appellate choices from the Sixties and Nineteen Seventies that have been a part of “a federal, common-law fiduciary responsibility” that was later invalidated in McNally v. United States.[10] The Chastain majority was extremely essential of this open-ended idea of a federal fiduciary responsibility, which it said would threat a major growth of legal legal responsibility for federal fraud: “If the wire fraud statute criminalized conduct that merely departed from conventional notions of elementary honesty and honest play, ‘nearly any misleading act might be legal,’” a situation that “would ‘vastly broaden[] federal jurisdiction with out statutory authorization’ by ‘mak[ing] a federal crime of an nearly limitless number of misleading actions historically left to state contract and tort regulation.’”[11] Though white collar protection attorneys will certainly welcome this a part of the Chastain opinion, it bears noting that Decide Cabranes in dissent expressed the view that the challenged jury instruction was per longstanding circuit precedent.[12]
The Johnson case arose from a posh international change (FX) transaction that occurred in 2011. A British power firm, Cairn Vitality, deliberate to promote an abroad subsidiary for roughly $4 billion and wished to transform the proceeds from U.S. {dollars} to British kilos sterling (GBP).[13] After an intensive choice course of led by Cairn’s funding banker at Rothschild & Co., Cairn engaged HSBC to deal with the transaction, which was to be priced at a benchmark stage printed by a 3rd social gathering pricing service, WM/Reuters, at a time chosen by Cairn. Cairn agreed to provide HSBC two hours’ advance discover of the actual pricing stage, or “repair,” at which the transaction could be priced.[14] In the course of the negotiations, Johnson instructed a Rothschild banker that HSBC would buy GBP within the interval main as much as the repair, however allegedly promised that it will achieve this “quietly” to keep away from extreme upward strain or “ramping” of the market worth main into the repair.[15] Within the hours and minutes main as much as the repair, HSBC bought GBP in anticipation of the Cairn transaction, which had the impact of driving up the spot worth of GBP and lowering the quantity of GBP that Cairn would in the end obtain.[16] After the transaction, Cairn inquired in regards to the improve within the worth of GBP within the hour earlier than the transaction was priced. In response, Johnson falsely cited purported exercise by the Russian Central Financial institution.[17]
Johnson was indicted by the U.S. Lawyer’s Workplace for the Jap District of New York on wire fraud prices, and was convicted and sentenced to 2 years in jail, which he served. At trial, the district courtroom instructed the jury on two various theories of wire fraud: (a) that Johnson—by representing that HSBC would buy GBP “quietly” and wouldn’t ramp the repair however later shopping for GBP in enough amount to trigger the market worth to rise forward of the repair—defrauded Cairn by depriving it of “data needed to permit it to make discretionary financial choices” (the right-to-control concept); and (b) that Johnson misappropriated Cairn’s confidential data, in breach of an obligation of belief and confidence owed to Cairn, and used the misappropriated data to generate secret earnings for HSBC by ramping the repair.[18]
In an preliminary attraction, determined in 2019, the Second Circuit affirmed Johnson’s conviction beneath the right-to-control concept and didn’t deal with the misappropriation concept. Subsequently, nonetheless, in Ciminelli v. United States, the Supreme Court docket unanimously invalidated the right-to-control concept—which had been a mainstay of mail and wire fraud prosecutions within the Second Circuit for many years—on grounds that the intangible “proper to beneficial financial data wanted to make discretionary financial choices isn’t a conventional property curiosity” throughout the which means of the federal fraud statutes.[19]
Within the wake of Ciminelli, Johnson sought post-conviction aid through the rarely-granted writ of coram nobis, and the Second Circuit not too long ago granted the writ as a result of the proof of misappropriation, standing alone, was inadequate to maintain the conviction.[20]
Within the Johnson prosecution, the misappropriation concept was primarily based on the proposition that HSBC turned Cairn’s fiduciary, which, because the courtroom famous, requires “‘de facto management and dominance’ by the agent over the principal’s affairs” and that the agent transact “‘not for his personal profit, however for the good thing about one other.’”[21] Reviewing the proof, the Second Circuit positioned nice emphasis on the truth that HSBC had entered right into a written contract with Cairn which said that: (a) HSBC wouldn’t function Cairn’s agent and would as a substitute transact with Cairn on a principal foundation; (b) HSBC disclaimed any position as Cairn’s funding or monetary advisor; (c) Cairn was chargeable for making its personal unbiased choices concerning the transaction; and (d) HSBC was not performing as a fiduciary for Cairn.[22] The courtroom held that though it’s “legally attainable” for a celebration to kind a “de facto fiduciary relationship however a purported contractual disclaimer of such a relationship, … the proof for such a fiduciary relationship would have to be fairly robust and the jury cost fairly clear,” and {that a} factfinder “should start from the presumption that no fiduciary responsibility exists, and solely the strongest parol proof {that a} defendant intentionally created a quasi-fiduciary relationship can suffice to override that presumption.”[23]
In an try to beat the presumption, the federal government pointed to a separate non-disclosure settlement (NDA) that HSBC entered into with Cairn and argued that the “NDA counteracted the contractual disclaimer in a roundabout way and created an unbiased fiduciary responsibility.”[24] The Second Circuit rejected this argument, discovering that the NDA was merely “one other piece of parol proof” and that it was inadequate to beat the contractual disclaimer of any fiduciary relationship between HSBC and Cairn.[25]
In Kousisis, the Supreme Court docket upheld the conviction of a enterprise proprietor who obtained two high-value portray contracts from a Pennsylvania state company by falsely certifying the participation of a deprived enterprise. Despite the fact that the state company acquired exactly the providers for which it bargained—a reality sample that’s strikingly just like the now-discredited “proper to manage” concept of wire fraud—the Supreme Court docket upheld the conviction on grounds that the defendant had fraudulently induced the state company to enter into the contract within the first place.[26] The defendant argued that he couldn’t be convicted of federal property fraud as a result of the state company “acquired the total financial advantage of its cut price,” however the Supreme Court docket rejected this argument on grounds that neither the statutory textual content nor the widespread regulation antecedents of the statute require proof of financial loss to the sufferer.[27]
Kousisis casts doubt on many years of Second Circuit case regulation that has lengthy imposed an intent-to-harm requirement as a solution to keep away from overbroad utility of the wire fraud statute. See, e.g., United States v. Regent Workplace Provide Co., 421 F.second 1174 (second Cir. 1970); United States v. Starr, 816 F.second 94 (second Cir. 1987); and United States v. Shellef, 507 F.3d 82 (second Cir. 2007). Writing individually, Justices Gorsuch and Sotomayor highlighted the priority that the fraudulent inducement concept dangers an entire new wave of overbroad prosecutions that might flip “prosecutors and courts into morality police with a fee to prosecute and punish innocent lies.”[28] The assorted opinions in Kousisis pointed to the “demanding” materiality ingredient as a way to forestall overbroad utility of the fraudulent inducement concept, and several other justices proffered alternative ways to conceptualize materiality on this context, however the Court docket didn’t set up a concrete materiality customary that may readily be translated into jury directions, portending future litigation on that query.[29]
The textual content of the wire fraud statute is deceptively easy: it criminalizes “any scheme or artifice to defraud, or for acquiring cash or property by way of false of fraudulent pretenses, representations, or guarantees” by which there was an interstate wire transmission. 18 U.S.C. § 1343. And but, because the foregoing dialogue demonstrates, for greater than three many years, this statutory language has led to aggressive prosecutions, overturned convictions and complications for attorneys and judges—with a wealthy historical past of flip-flops, divided choices and nuanced distinctions within the case regulation. The current choices in Chastain, Johnson and Kousisis provide a number of key takeaways:
- With respect to insider buying and selling, itself a extremely advanced space of regulation that’s addressed by the wire fraud statute in addition to two separate securities fraud statutes (with completely different parts) in Titles 18 and 15 of the U.S. Code, Chastain creates symmetry with Blaszczak in order that any misappropriation case should now relaxation on data that has business worth to the entity from which it was misappropriated—no matter whether or not that entity is a authorities company or a private-sector enterprise. These authorized developments will probably give the federal government pause when charging insider buying and selling circumstances the place the misappropriated data at difficulty is novel in some respect, which might be significantly helpful in circumstances involving digital property.
- For its half, Johnson incorporates useful language emphasizing the strict proof necessities to ascertain a fiduciary responsibility and means that the federal government may have a tough time pursuing misappropriation circumstances if there’s a contractual disclaimer of any company relationship. It stays to be seen how prosecutors and courts will apply these rules to securities fraud circumstances introduced beneath SEC Rule 10b5-2, which states that “an obligation of belief or confidence” exists for functions of misappropriation insider buying and selling circumstances at any time when “an individual agrees to take care of data in confidence.”[30] This regulation appears in rigidity with a few of the language in Johnson, which didn’t give a lot weight to the existence of an NDA in gentle of the opposite proof within the case. Johnson may give practitioners ammunition in circumstances involving 10b5-2 breaches, significantly in gentle of the Supreme Court docket’s current disfavoring of prosecution by regulation.
- With respect to wire fraud extra broadly, Chastain presents two traces of protection that might be useful for practitioners: the commercial-value requirement and the emphatic rejection of anachronistic jury directions that talk of “elementary honesty and honest play within the normal and enterprise lifetime of society.” On this regard, Chastain is in sync with most of the Supreme Court docket’s current choices narrowing the scope of the federal property fraud statutes—together with Cleveland, Skilling, Kelly and Ciminelli—all of which replicate judicial discomfort with the specter of broad-ranging federal legal prosecutions primarily based on unethical enterprise practices or breaches of fiduciary responsibility.
- Nevertheless, even because the Supreme Court docket has narrowed the scope of the federal fraud statutes, its current resolution in Kousisis may result in a brand new wave of expansive wire and mail fraud investigations and prosecutions alongside the traces of the “right-to-control” circumstances that bedeviled defendants and protection counsel for years. In response to issues that the fraudulent-inducement concept may result in overbroad enforcement, the Kousisis Court docket emphasised the necessity for a “‘demanding’ materiality requirement” that it predicted will “considerably slim[] the universe of actionable misrepresentations.”[31] Practitioners who’re acquainted with how the materiality requirement usually performs out with juries are prone to be much less sanguine. If the federal government is ready to articulate a fraudulent inducement concept that’s not a right-to-control concept in disguise, which ought to be tough, an important bulwark towards overly-expansive fraud prosecutions is a strong jury instruction on the essential ingredient of fraudulent intent, together with liberal use of the defense-friendly good-faith instruction at any time when an evidentiary predicate has been established.
[1] United States v. Chastain, No. 23-7038 (second Cir. July 31, 2025) and Johnson v. United States, No. 24-1221 (second Cir. July 17, 2025).
[2] 145 S. Ct. 1382 (2025).
[3] Chastain, slip op. at 14-15.
[4] Id. at 23-24. In Carpenter, 484 U.S. 19 (1987), the Supreme Court docket upheld a wire fraud conviction for insider buying and selling primarily based on a Wall Road Journal reporter’s misappropriation of pre-publication information articles in order that his co-conspirators may purchase or promote securities earlier than the articles have been printed, with the expectation of incomes buying and selling earnings primarily based on anticipated actions within the inventory worth of corporations featured within the articles. The Carpenter Court docket held that the unpublished information articles have been property, for functions of the wire fraud statute, as a result of they have been the Journal’s “inventory in commerce, to be gathered at the price of enterprise, group, talent, labor, and cash, and to be distributed and offered to those that can pay cash for it, as for another merchandise.” Carpenter, 484 U.S. at 25-26.
[5] Chastain, slip op. at 23.
[6] Id. The courtroom contrasted the very fact sample in Chastain with United States v. Grossman, 843 F.second 78, 86 (second Cir. 1988), by which a regulation agency affiliate misappropriated confidential consumer data. In Grossman, a number of companions of the regulation agency testified that the agency would lose purchasers if its attorneys didn’t keep the confidentiality of consumer data.
[7] United States v. Blaszczak, 56 F.4th 230 (second Cir. 2022) (“Blaszczak II”); see additionally United States v. Blaszczak, 947 F.3d 19 (second Cir. 2019).
[8] Blaszczak II, 56 F.4th at 243-44. The Second Circuit analogized CMS’s medicare-reimbursement plans to a “the federal government’s regulatory rights of ‘allocation, exclusion, and management,’” which the Supreme Court docket held have been outdoors the definition of “property” in Kelly, 590 U.S. 391 (2020), and Cleveland v. United States, 531 U.S. 12, 15-16 (2000). Id. at 235, 243-44. In Cleveland, the defendant was convicted of mail fraud primarily based on false statements in an utility for a license to function video poker machines in Louisiana. The Supreme Court docket unanimously reversed the conviction on grounds that the video poker license was not “property” beneath the mail fraud statute. Id. at 374. The Court docket reasoned that the license, a part of a state regulatory program, was an train of “conventional police powers,” was not offered “within the odd business sense” and implicated Louisiana’s “position as sovereign, not as property holder.” Id. at 372-73. In Kelly, the defendant was convicted of wire fraud primarily based on a scheme to trigger a site visitors jam on the George Washington Bridge to actual political retribution on the mayor of Fort Lee, New Jersey, who had declined to help then-Governor Chris Christie. 590 U.S. at 393. The Supreme Court docket unanimously threw out the conviction on grounds that entry to the bridge was not “property” and was as a substitute an train of state regulatory energy, as in Cleveland. Id. at 393-94, 400-01.
[9] Blaszczak II, 56 F.4th at 252-57.
[10] Chastain, slip op. at 21-22 (quoting Skilling v. United States, 561 U.S. 358, 416-18 (2010) (Scalia, J., concurring partly and concurring within the judgment). In McNally, 483 U.S. 350, the Supreme Court docket held that the mail fraud statute didn’t prolong to schemes to deprive somebody of the intangible proper to trustworthy providers. In 1988, Congress legislatively overruled McNally by enacting 18 U.S.C. § 1346, which offers that “the time period ‘scheme or artifice to defraud’ features a scheme or artifice to deprive one other of the intangible proper of trustworthy providers.” In 2010, after years of controversy over the correct building of this statutory language, the Supreme Court docket adopted a limiting precept beneath which honest-services prosecutions have to be primarily based on a kickback or bribe and never an open-ended breach of fiduciary responsibility. Skilling, 561 U.S. 358, 408-09.
[11] Chastain, slip op. at 21 (quoting Ciminelli v. United States, 598 U.S. 306, 315 (2023)).
[12] Chastain, slip. op. at 4-5 (Cabranes, J., dissenting).
[13] United States v. Johnson, 945 F.3d 606, 608-08 (second Cir. 2019) (“Johnson I”).
[14] Id. at 609-10.
[15] Id. at 609.
[16] Id. at 610. The federal government characterised this exercise—which many observers would take into account to be regular and needed risk-management exercise that’s inherent in any massive FX transaction priced on the repair—in pejorative phrases as “ramping the repair,” a characterization that was accepted by the Second Circuit. See id. at 613-14.
[17] Id. at 611.
[18] Id. at 611.
[19] 598 U.S. at 316.
[20] Johnson v. United States, No. 24-1221, slip op. at 29 (second Cir. July 17, 2025) (“Johnson II”).
[21] Id. at 22-23 (quoting United States v. Skelly, 442 F.3d 94, 98-99 (second Cir. 2006), and Black’s Regulation Dictionary 564 (5thed. 1979)).
[22] Johnson II, slip op. at 11-12, 23. The contract integrated language from the usual ISDA Grasp Settlement that was in place between HSBC and Cairn, together with non-reliance language and an specific acknowledgment that neither social gathering was a fiduciary for the opposite.
[23] Id. at 24.
[24] Johnson, slip op. at 24-25 n.4.
[25] Id.
[26] Kousisis, 145 S. Ct. 1382, 1388. “Beneath the fraudulent inducement concept, a defendant commits federal fraud at any time when he makes use of a cloth misstatement to trick a sufferer right into a contract that requires handing over her cash or property – no matter whether or not the fraudster, who usually offers one thing in return, seeks to trigger the sufferer internet pecuniary loss.” Id. In Kousisis, the Court docket famous that the federal government had urged affirmance in Ciminelli on a fraudulent inducement concept, however that this concept had not been offered to the jury. Id. at 1398. In gentle of Kousisis, it appears extremely probably that the Court docket would have confirmed the conviction in Ciminelli had the case been prosecuted beneath a fraudulent inducement concept versus a right-to-control concept.
[27] Id. at 1390-96.
[28] Id. at 1407 (Gorsuch, J., concurring partly and concurring within the judgment); see additionally id. at 1412 (Sotomayor, J., concurring).
[29] See id. at 1398 (majority opinion); see additionally id. at 1399-1405 (Thomas, J., concurring); id. at 1409-10 (Gorsuch, J., concurring partly and concurring within the judgment); id. at 1412-15 (Sotomayor, J., concurring).
[30] 17 C.F.R. § 240.10b5-2(b)(1).
[31] Id. at 1398.
James Joseph Benjamin Jr., Katherine R. Goldstein, Michael A. Asaro, and Parvin Daphne Moyne are Companions at Akin Gump Strauss Hauer & Feld LLP. Peter I. Altman, a Companion at Akin Gump, additionally contributed to this text. This submit first appeared as a consumer alert for the agency.
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