Recent Developments in the Law of Federal Property Fraud: It’s a Long and Winding Road
In two recent high-profile decisions, Chastain v. United States and Johnson v. United States, the U.S. Court of Appeals for the Second Circuit reversed wire fraud convictions that were based on theories resembling insider trading.1 In both cases, the government invoked the wire fraud statute, and not a securities fraud statute, because the products at issue (non-fungible tokens and spot foreign currency) were not securities. These cases mark the latest developments in a long-running, ongoing and sometimes head-spinning debate in the courts concerning the breadth of the federal property fraud statutes.
In Chastain, the court held that confidential business information obtained by an employee that lacks commercial value to the employer is not a “traditional property interest” under the wire fraud statute. This decision can be seen as a logical extension of United States v. Blaszczak, a Second Circuit decision from 2022, which held that confidential government information was not property for purposes of the federal fraud statutes because the information did not have commercial value to the government. The Chastain majority also criticized a different jury instruction administered by the district court—which permitted the jury to convict the defendant if he “conducted himself in a manner that departed from traditional notions of fundamental honesty and fair play in the general and business life of society”—as overbroad because this language would effectively criminalize almost any deceptive act.
In Johnson, the defendant was convicted of wire fraud based on alternative theories that: (a) he defrauded a trading counterparty of its “right to control” the use of its assets; and (b) he misappropriated confidential information from the counterparty. In a recent decision, the Second Circuit granted exceedingly rare coram nobis relief because, after the “right to control” theory was invalidated in Ciminelli v. United States, the evidence of misappropriation was too weak to sustain the conviction. The court emphasized that the misappropriation theory of fraud requires a “pre-existing fiduciary or quasi-fiduciary relationship” and proof of “control and dominance” over the alleged victim’s affairs.
These decisions, which come from the nation’s leading appellate court in the area of financial crime prosecutions, illustrate the ongoing challenges of imposing predictable and workable limitations so that the government does not have the power to jail people for aggressive or unethical business practices that do not amount to federal property fraud. They also highlight emerging lines of defense for individuals subject to prosecution under the federal property and securities fraud statutes.
However, even as the Second Circuit has pared back aspects of federal property fraud, the Supreme Court appears to have opened a new avenue of prosecutions in its recent decision in Kousisis v. United States, which approved the “fraudulent inducement” theory of federal property fraud.2 Kousisis cuts against the grain of many other Supreme Court decisions in the past generation, each of which curtailed the scope of the federal fraud statutes to avoid sweeping criminalization of a wide range of deceptive acts. Although the implications of Kousisis remain to be seen, the newly-approved fraudulent inducement theory appears, on its face, to be potentially expansive.
Chastain: Commercial Value of Information and Rejection of Overbroad Jury Instructions
OpenSea is the largest marketplace for non-fungible tokens (NFTs), which are digital assets recorded and traded on the blockchain that are often associated with art, memorabilia and other media. Nathaniel Chastain, the head of product at OpenSea at the time, selected NFTs to be featured on the homepage of the website. An NFT featured on OpenSea’s homepage typically would see higher demand in trading, resulting in increased value. Chastain, like other OpenSea employees, signed a confidentiality agreement covering information he learned through his employment. Chastain purchased several NFTs before they were featured on the website’s front page, selling them after listing for a profit of approximately $57,000.
In 2022, the U.S. Attorney’s Office for the Southern District of New York indicted Chastain for wire fraud and money laundering, but it did not allege a violation of the federal securities laws, thereby avoiding a requirement to prove that the NFTs he traded were securities. At trial, the prosecution contended that Chastain had misappropriated OpenSea’s confidential business information by purchasing NFTs ahead of the public announcement of their listings. Chastain was convicted following a jury trial and sentenced to three months’ imprisonment and three years of supervised release.
A divided panel of the Second Circuit vacated Chastain’s conviction and remanded the case to the district court, holding that the jury had been erroneously instructed that it could find Chastain guilty of wire fraud if: (1) the information he allegedly misappropriated did not have economic value to OpenSea and (2) he “conducted himself in a manner that departed from the traditional notions of fundamental honesty and fair play in the general and business life of society.”
Regarding the first jury instruction, the majority emphasized that the wire fraud statute covers only traditional property interests, and that not all confidential information qualifies as such.3 The majority adopted a narrow reading of the Supreme Court’s seminal insider trading decision in Carpenter v. United States and held that a company’s confidential business information is considered “property” for purposes of the wire fraud statute only if the information has economic value to the company.4 Although OpenSea’s homepage selection process tended to affect the value of NFTs that were featured on the homepage, the selection process did not result in any revenue or other economic value for OpenSea, which simply collected a standard 2.5% commission on each NFT transaction.5 At trial, some OpenSea employees testified that the company could potentially suffer reputational harm if there were insider trading of featured NFTs, but the Second Circuit found that this was insufficient to constitute a property interest under the wire fraud statute.6
In its 2022 decision in Blaszczak, the Second Circuit vacated wire fraud convictions of defendants who misappropriated confidential government information from CMS, the federal agency that handles Medicare reimbursement, and then used the information to make profitable securities trades. In a prior appeal in 2019, the Second Circuit had affirmed the Blaszczak convictions, but three years later—after an intervening Supreme Court decision in Kelly v. United States—the government confessed error, and the Second Circuit vacated the convictions over a dissent from Judge Sullivan.7 The 2022 Blaszczak majority concluded that the government information at issue in the case did not constitute “property” under the wire fraud statute because “CMS is not a commercial entity; it does not sell, or offer for sale, a service or product” and because the disclosure of CMS’s confidential information “has no direct impact on the government’s fisc.”8 Judge Sullivan wrote a strongly-worded dissent arguing that confidential information had long been recognized as “property” under the federal fraud statutes regardless of whether it had inherent commercial or economic value.9
With respect to the second challenged jury instruction—which invoked “traditional notions of fundamental honesty and fair play in the general and business life of society”—the majority traced the language back to appellate decisions from the 1960s and 1970s that were part of “‘a federal, common-law fiduciary duty’” that was later invalidated in McNally v. United States.10 The Chastain majority was highly critical of this open-ended concept of a federal fiduciary duty, which it stated would risk a significant expansion of criminal liability for federal fraud: “If the wire fraud statute criminalized conduct that merely departed from traditional notions of fundamental honesty and fair play, ‘almost any deceptive act could be criminal,’” a scenario that “would ‘vastly expand[] federal jurisdiction without statutory authorization’ by ‘mak[ing] a federal crime of an almost limitless variety of deceptive actions traditionally left to state contract and tort law.’”11 Although white collar defense lawyers will surely welcome this part of the Chastain opinion, it bears noting that Judge Cabranes in dissent expressed the view that the challenged jury instruction was consistent with longstanding circuit precedent.12
Johnson: Requirement of Strong Evidentiary Foundation for Misappropriation Theory
The Johnson case arose from a complex foreign exchange (FX) transaction that occurred in 2011. A British energy company, Cairn Energy, planned to sell an overseas subsidiary for approximately $4 billion and wished to convert the proceeds from U.S. dollars to British pounds sterling (GBP).13 After an extensive selection process led by Cairn’s investment banker at Rothschild & Co., Cairn engaged HSBC to handle the transaction, which was to be priced at a benchmark level published by a third party pricing service, WM/Reuters, at a time selected by Cairn. Cairn agreed to give HSBC two hours’ advance notice of the particular pricing level, or “fix,” at which the transaction would be priced.14 During the negotiations, Johnson told a Rothschild banker that HSBC would purchase GBP in the period leading up to the fix, but allegedly promised that it would do so “quietly” to avoid excessive upward pressure or “ramping” of the market price leading into the fix.15 In the hours and minutes leading up to the fix, HSBC purchased GBP in anticipation of the Cairn transaction, which had the effect of driving up the spot price of GBP and reducing the amount of GBP that Cairn would ultimately receive.16 After the transaction, Cairn inquired about the increase in the price of GBP in the hour before the transaction was priced. In response, Johnson falsely cited purported activity by the Russian Central Bank.17
Johnson was indicted by the U.S. Attorney’s Office for the Eastern District of New York on wire fraud charges, and was convicted and sentenced to two years in prison, which he served. At trial, the district court instructed the jury on two alternative theories of wire fraud: (a) that Johnson—by representing that HSBC would purchase GBP “quietly” and would not ramp the fix but later buying GBP in sufficient quantity to cause the market price to rise ahead of the fix—defrauded Cairn by depriving it of “information necessary to allow it to make discretionary economic decisions” (the right-to-control theory); and (b) that Johnson misappropriated Cairn’s confidential information, in breach of a duty of trust and confidence owed to Cairn, and used the misappropriated information to generate secret profits for HSBC by ramping the fix.18
In an initial appeal, decided in 2019, the Second Circuit affirmed Johnson’s conviction under the right-to-control theory and did not address the misappropriation theory. Subsequently, however, in Ciminelli v. United States, the Supreme Court unanimously invalidated the right-to-control theory—which had been a mainstay of mail and wire fraud prosecutions in the Second Circuit for decades—on grounds that the intangible “right to valuable economic information needed to make discretionary economic decisions is not a traditional property interest” within the meaning of the federal fraud statutes.19
In the wake of Ciminelli, Johnson sought post-conviction relief via the rarely-granted writ of coram nobis, and the Second Circuit recently granted the writ because the evidence of misappropriation, standing alone, was insufficient to sustain the conviction.20
In the Johnson prosecution, the misappropriation theory was based on the proposition that HSBC became Cairn’s fiduciary, which, as the court noted, requires “‘de facto control and dominance’ by the agent over the principal’s affairs” and that the agent transact “‘not for his own benefit, but for the benefit of another.’”21 Reviewing the evidence, the Second Circuit placed great emphasis on the fact that HSBC had entered into a written contract with Cairn which stated that: (a) HSBC would not serve as Cairn’s agent and would instead transact with Cairn on a principal basis; (b) HSBC disclaimed any role as Cairn’s investment or financial advisor; (c) Cairn was responsible for making its own independent decisions regarding the transaction; and (d) HSBC was not acting as a fiduciary for Cairn.22 The court held that although it is “legally possible” for a party to form a “de facto fiduciary relationship notwithstanding a purported contractual disclaimer of such a relationship, ... the evidence for such a fiduciary relationship would need to be quite strong and the jury charge quite clear,” and that a factfinder “must begin from the presumption that no fiduciary duty exists, and only the strongest parol evidence that a defendant deliberately created a quasi-fiduciary relationship can suffice to override that presumption.”23
In an attempt to overcome the presumption, the government pointed to a separate non-disclosure agreement (NDA) that HSBC entered into with Cairn and argued that the “NDA counteracted the contractual disclaimer in some way and created an independent fiduciary duty.”24 The Second Circuit rejected this argument, finding that the NDA was simply “another piece of parol evidence” and that it was insufficient to overcome the contractual disclaimer of any fiduciary relationship between HSBC and Cairn.25
Kousisis: Judicial Approval of the Fraudulent Inducement Theory
In Kousisis, the Supreme Court upheld the conviction of a business owner who obtained two high-value painting contracts from a Pennsylvania state agency by falsely certifying the participation of a disadvantaged business. Even though the state agency received precisely the services for which it bargained—a fact pattern that is strikingly similar to the now-discredited “right to control” theory of wire fraud—the Supreme Court upheld the conviction on grounds that the defendant had fraudulently induced the state agency to enter into the contract in the first place.26 The defendant argued that he could not be convicted of federal property fraud because the state agency “received the full economic benefit of its bargain,” but the Supreme Court rejected this argument on grounds that neither the statutory text nor the common law antecedents of the statute require proof of economic loss to the victim.27
Kousisis casts doubt on decades of Second Circuit case law that has long imposed an intent-to-harm requirement as a way to avoid overbroad application of the wire fraud statute. See, e.g., United States v. Regent Office Supply Co., 421 F.2d 1174 (2d Cir. 1970); United States v. Starr, 816 F.2d 94 (2d Cir. 1987); and United States v. Shellef, 507 F.3d 82 (2d Cir. 2007). Writing separately, Justices Gorsuch and Sotomayor highlighted the concern that the fraudulent inducement theory risks a whole new wave of overbroad prosecutions that would turn “prosecutors and courts into morality police with a commission to prosecute and punish harmless lies.”28 The various opinions in Kousisis pointed to the “demanding” materiality element as a means to prevent overbroad application of the fraudulent inducement theory, and several justices proffered different ways to conceptualize materiality in this context, but the Court did not establish a concrete materiality standard that can readily be translated into jury instructions, portending future litigation on that question.29
Implications and Takeaways for Defense Counsel
The text of the wire fraud statute is deceptively simple: it criminalizes “any scheme or artifice to defraud, or for obtaining money or property by means of false of fraudulent pretenses, representations, or promises” in which there was an interstate wire transmission. 18 U.S.C. § 1343. And yet, as the foregoing discussion demonstrates, for more than three decades, this statutory language has led to aggressive prosecutions, overturned convictions and headaches for lawyers and judges—with a rich history of flip-flops, divided decisions and nuanced distinctions in the case law. The recent decisions in Chastain, Johnson and Kousisis offer a few key takeaways:
- With respect to insider trading, itself a highly complex area of law that is addressed by the wire fraud statute as well as two separate securities fraud statutes (with different elements) in Titles 18 and 15 of the U.S. Code, Chastain creates symmetry with Blaszczak so that any misappropriation case must now rest on information that has commercial value to the entity from which it was misappropriated—regardless of whether that entity is a government agency or a private-sector business. These legal developments will likely give the government pause when charging insider trading cases where the misappropriated information at issue is novel in some respect, which could be particularly useful in cases involving digital assets.
- For its part, Johnson contains helpful language emphasizing the strict proof requirements to establish a fiduciary duty and suggests that the government will have a hard time pursuing misappropriation cases if there is a contractual disclaimer of any agency relationship. It remains to be seen how prosecutors and courts will apply these principles to securities fraud cases brought under SEC Rule 10b5-2, which states that “a duty of trust or confidence” exists for purposes of misappropriation insider trading cases whenever “a person agrees to maintain information in confidence.”30 This regulation seems in tension with some of the language in Johnson, which did not give much weight to the existence of an NDA in light of the other evidence in the case. Johnson could give practitioners ammunition in cases involving 10b5-2 breaches, particularly in light of the Supreme Court’s recent disfavoring of prosecution by regulation.
- With respect to wire fraud more broadly, Chastain offers two lines of defense that could be helpful for practitioners: the commercial-value requirement and the emphatic rejection of anachronistic jury instructions that speak of “fundamental honesty and fair play in the general and business life of society.” In this regard, Chastain is in sync with many of the Supreme Court’s recent decisions narrowing the scope of the federal property fraud statutes—including Cleveland, Skilling, Kelly and Ciminelli—all of which reflect judicial discomfort with the specter of broad-ranging federal criminal prosecutions based on unethical business practices or breaches of fiduciary duty.
- However, even as the Supreme Court has narrowed the scope of the federal fraud statutes, its recent decision in Kousisis could lead to a new wave of expansive wire and mail fraud investigations and prosecutions along the lines of the “right-to-control” cases that bedeviled defendants and defense counsel for years. In response to concerns that the fraudulent-inducement theory could lead to overbroad enforcement, the Kousisis Court emphasized the need for a “‘demanding’ materiality requirement” that it predicted will “substantially narrow[] the universe of actionable misrepresentations.”31 Practitioners who are familiar with how the materiality requirement often plays out with juries are likely to be less sanguine. If the government is able to articulate a fraudulent inducement theory that is not a right-to-control theory in disguise, which should be difficult, the most important bulwark against overly-expansive fraud prosecutions is a robust jury instruction on the critical element of fraudulent intent, including liberal use of the defense-friendly good-faith instruction whenever an evidentiary predicate has been established.
1 United States v. Chastain, No. 23-7038 (2d Cir. July 31, 2025) and Johnson v. United States, No. 24-1221 (2d 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 upheld a wire fraud conviction for insider trading based on a Wall Street Journal reporter’s misappropriation of pre-publication news articles so that his co-conspirators could buy or sell securities before the articles were published, with the expectation of earning trading profits based on anticipated movements in the stock price of companies featured in the articles. The Carpenter Court held that the unpublished news articles were property, for purposes of the wire fraud statute, because they were the Journal’s “stock in trade, to be gathered at the cost of enterprise, organization, skill, labor, and money, and to be distributed and sold to those who will pay money for it, as for any other merchandise.” Carpenter, 484 U.S. at 25-26.
5 Chastain, slip op. at 23.
6 Id. The court contrasted the fact pattern in Chastain with United States v. Grossman, 843 F.2d 78, 86 (2d Cir. 1988), in which a law firm associate misappropriated confidential client information. In Grossman, several partners of the law firm testified that the firm would lose clients if its lawyers did not maintain the confidentiality of client information.
7 United States v. Blaszczak, 56 F.4th 230 (2d Cir. 2022) (“Blaszczak II”); see also United States v. Blaszczak, 947 F.3d 19 (2d Cir. 2019).
8 Blaszczak II, 56 F.4th at 243-44. The Second Circuit analogized CMS’s medicare-reimbursement plans to a “the government’s regulatory rights of ‘allocation, exclusion, and control,’” which the Supreme Court held were outside 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 based on false statements in an application for a license to operate video poker machines in Louisiana. The Supreme Court unanimously reversed the conviction on grounds that the video poker license was not “property” under the mail fraud statute. Id. at 374. The Court reasoned that the license, part of a state regulatory program, was an exercise of “traditional police powers,” was not sold “in the ordinary commercial sense” and implicated Louisiana’s “role as sovereign, not as property holder.” Id. at 372-73. In Kelly, the defendant was convicted of wire fraud based on a scheme to cause a traffic jam at the George Washington Bridge to exact political retribution on the mayor of Fort Lee, New Jersey, who had declined to support then-Governor Chris Christie. 590 U.S. at 393. The Supreme Court unanimously threw out the conviction on grounds that access to the bridge was not “property” and was instead an exercise of state regulatory power, 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 in part and concurring in the judgment). In McNally, 483 U.S. 350, the Supreme Court held that the mail fraud statute did not extend to schemes to deprive someone of the intangible right to honest services. In 1988, Congress legislatively overruled McNally by enacting 18 U.S.C. § 1346, which provides that “the term ‘scheme or artifice to defraud’ includes a scheme or artifice to deprive another of the intangible right of honest services.” In 2010, after years of controversy over the proper construction of this statutory language, the Supreme Court adopted a limiting principle under which honest-services prosecutions must be based on a kickback or bribe and not an open-ended breach of fiduciary duty. 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 (2d Cir. 2019) (“Johnson I”).
14 Id. at 609-10.
15 Id. at 609.
16 Id. at 610. The government characterized this activity—which many observers would consider to be normal and necessary risk-management activity that is inherent in any large FX transaction priced at the fix—in pejorative terms as “ramping the fix,” 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 (2d Cir. July 17, 2025) (“Johnson II”).
21 Id. at 22-23 (quoting United States v. Skelly, 442 F.3d 94, 98-99 (2d Cir. 2006), and Black’s Law Dictionary 564 (5thed. 1979)).
22 Johnson II, slip op. at 11-12, 23. The contract incorporated language from the standard ISDA Master Agreement that was in place between HSBC and Cairn, including non-reliance language and an explicit acknowledgment that neither party was a fiduciary for the other.
23 Id. at 24.
24 Johnson, slip op. at 24-25 n.4.
25 Id.
26 Kousisis, 145 S. Ct. 1382, 1388. “Under the fraudulent inducement theory, a defendant commits federal fraud whenever he uses a material misstatement to trick a victim into a contract that requires handing over her money or property – regardless of whether the fraudster, who often provides something in return, seeks to cause the victim net pecuniary loss.” Id. In Kousisis, the Court noted that the government had urged affirmance in Ciminelli on a fraudulent inducement theory, but that this theory had not been presented to the jury. Id. at 1398. In light of Kousisis, it seems highly likely that the Court would have confirmed the conviction in Ciminelli had the case been prosecuted under a fraudulent inducement theory as opposed to a right-to-control theory.
27 Id. at 1390-96.
28 Id. at 1407 (Gorsuch, J., concurring in part and concurring in the judgment); see also id. at 1412 (Sotomayor, J., concurring).
29 See id. at 1398 (majority opinion); see also id. at 1399-1405 (Thomas, J., concurring); id. at 1409-10 (Gorsuch, J., concurring in part and concurring in the judgment); id. at 1412-15 (Sotomayor, J., concurring).
30 17 C.F.R. § 240.10b5-2(b)(1).
31 Id. at 1398.
