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Nathaniel Chastain convicted of using confidential information to trade on digital tokens

A former employee of NFT marketplace OpenSea was found guilty Wednesday of what federal prosecutors described as the first insider-trading case involving digital tokens, marking a win for the Justice Department in its push to police the crypto industry.

A federal jury in New York convicted Nathaniel Chastain of wire fraud and money laundering for using nonpublic information from his employer to trade on nonfungible tokens in 2021. The Manhattan U.S. attorney’s office charged Mr. Chastain in 2022, accusing him of purchasing the NFTs ahead of OpenSea’s featuring them on its home page. Once the NFTs spiked in value after being featured, Mr. Chastain sold them, pocketing tens of thousands of dollars in profit, prosecutors said.

“He had information that would give him a leg up on every other NFT trader,” Assistant U.S. Attorney Thomas Burnett said during closing arguments.

The five-day trial, which started last week, was the latest example of the Justice Department’s ramped-up law enforcement efforts against the lightly regulated crypto industry.

Mr. Chastain had denied the charges.

“We respect the jury process and appreciate the jury’s time and effort,” David Miller, a lawyer for Mr. Chastain, said in a statement after the conviction. “We disagree, however, with the jury’s verdict and we are evaluating our options.”

Ahead of the trial, his lawyers unsuccessfully fought to scrub any mention of insider trading from the case, arguing that prosecutors were taking liberties with the term. Prosecutors didn’t bring traditional insider-trading charges against Mr. Chastain, which involve securities or commodities violations, they said.

Daniel Filor, a lawyer for Mr. Chastain, sought to make the distinction during closing arguments, telling jurors that NFTs weren’t regulated like other industries.

“It’s not the stock market,” Mr. Filor said.

Mr. Chastain’s case ultimately centered on whether the information he used to purchase the NFTs was actually confidential.

Prosecutors said that when he was hired, he signed a confidentiality agreement that covered the information about upcoming featured NFTs. They presented Slack communications between him and a co-worker that they say showed he knew the scheme was wrong. Mr. Chastain also went to great lengths to conceal his identity in the transactions, they said.

OpenSea, the largest NFT marketplace, was a fledgling startup when Mr. Chastain was an employee, having at the time fewer than a dozen workers and no general counsel or compliance officer. Mr. Filor described the confidentiality agreement as a boilerplate contract downloaded from a legal services website. OpenSea had no clear policy or training for employees about what was considered confidential information, he said.

Mr. Chastain, a product manager, was in charge of choosing which NFTs to feature on the home page. OpenSea didn’t treat his feature choices as confidential and the company only cared that the home page looked pretty, his lawyers argued.

“Nobody ever told Nate that the NFT he chose to feature was a secret,” Mr. Filor said.

Firms set to pay $30 a share, or about $3 billion, for industrial-parts manufacturer

Private-equity firm Apollo Global Management APO -0.54% is nearing a deal to buy industrial-parts manufacturer Arconic, ARNC -5.69% according to people familiar with the matter.

The deal is set to value Arconic HWM -0.58% at $30 a share, or roughly $3 billion, according to the people. It could be announced by the time Arconic reports its results Thursday, assuming the talks don’t fall apart at the last minute. Shares of Arconic, which makes parts for the aerospace, automotive, building and energy industries, closed at $22.55 Wednesday.

The Pittsburgh-based industrial company, which was separated in 2016 from aluminum maker Alcoa, has a hefty debt load of more than $1.5 billion.

Apollo submitted a bid in February for Arconic, whose advisers sought out other potential acquirers, The Wall Street Journal previously reported.

Apollo participated in the sale process with hedge-fund investor Irenic Capital Management, which was co-founded by Adam Katz, a former employee of hedge-fund giant Elliott Investment Management. It is an unusual pairing between a buyout firm and a shareholder activist. Irenic previously disclosed it had built a small stake in Arconic in the fourth quarter of 2022.

Mr. Katz led a proxy fight Elliott ran in 2017 that resulted in the resignation of Arconic’s then-chief executive and a shake-up on the company’s board.

Irenic recently pushed back against Journal owner News Corp’s bid to recombine with its sister company, Fox, a plan that has since been abandoned.

The Journal reported in 2018 that Apollo expressed interest in a deal for Arconic. Apollo ultimately came close to an agreement to pay upward of $10 billion for the company, but Arconic instead further divided into two independent, publicly traded businesses in 2020.

Arconic’s Engineered Products and Forgings businesses remained in the company, which was renamed Howmet Aerospace. Its Global Rolled Products group became part of a new company that is now Arconic.

Apollo in March agreed to acquire chemical company Univar Solutions for $8.1 billion including debt. It was one of the largest recent leveraged buyouts, the pace of which has slowed as financing has become more expensive.

Arconic is set to report first-quarter earnings on Thursday morning before the market opens, according to its website.

Thin trading underpins 70% rise in the price of flagship cryptocurrency

Cryptocurrency trading activity has dwindled even as bitcoin enjoys its longest winning streak in more than two years, in a sign that many investors are increasingly reluctant to buy into the rebound after a string of collapses and scandals in 2022.

The price of bitcoin, the most popular token, has risen 70 per cent this year, helping the market regain some momentum following the failure of companies like exchange FTX.

Investors have shrugged off lawsuits from US regulators against companies such as Binance, the industry’s largest exchange, and the collapsed stablecoin operator Terraform Labs, as authorities have sought to clamp down on activity they see as illegal.

However, the price of bitcoin has since been stuck in a rut for more than a month, trading in a narrow range around $28,000. That pause has been accompanied by thinning volumes, with small trades increasingly able to move market prices.

“While bitcoin’s recent performance is great on the face of it, many in crypto are calling this year an unloved rally,” said Charles Storry, head of growth at Phuture, a crypto index provider.

“Sentiment hasn’t changed, and regulatory scrutiny is sidelining a lot of new money that might otherwise enter the space. Price movements don’t mean much if the industry isn’t making meaningful progress to regain trust and attract new investors,” he added.

A bruising 2022 has left investors nursing losses or funds trapped in limbo as failed cryptocurrency lenders and exchanges go through bankruptcy proceedings in the courts.

Crypto enthusiasts also argued confidence has been renewed by the weakness in the global banking sector, and the vast outflow of deposits from banks such as the US’s Silicon Valley Bank and Silvergate, and Credit Suisse in Switzerland.

“That rally we experienced after the banking crisis earlier this year seemed to be directly related to a flight for safety and self-custody of funds away from the dollar,” said Edmond Goh, head of trading at crypto broker B2C2.

But that sentiment has been undermined by a host of signals coming from crypto markets. Analysts point out that the rally in cryptocurrency prices was already built on a thinly traded market.

The degree to which a market can absorb large orders without major changes to the price of bitcoin has declined since the start of the year, according to data provider CCData.

In January it would have required the purchase of more than 1,400 bitcoins, roughly equivalent to $23mn at the time, to move the price of the token by more than 1 per cent of its prevailing market value, CCData said.

Towards the end of last month it would have taken only 462 bitcoins, worth about $13mn, to move market prices by 1 per cent, the lowest point of market depth for the bitcoin-tether trading pair since May 2022, when the industry plunged into crisis.

“Prices are recovering, but liquidity has yet to return. No exchange or market maker has yet to fill the space that FTX and [its sister trading arm] Alameda once encompassed,” said Michael Safai, managing partner at crypto trading firm Dexterity Capital.

Investors who have bought into bitcoin in recent months are now holding on to their investments.

Glassnode, a crypto data provider, said “there has been remarkably little expenditure” by investors who bought bitcoin when it hit a two-year low after FTX’s failure last November.

“The ‘FOMO’ that drove a lot of first time institutional and retail investors last year is obviously not happening now, despite the fact the crypto markets have rallied significantly this year,” said one crypto fund manager based in Dubai, referring to a fear of missing out.

Moreover, there have been outflows of $72mn over the last two weeks in digital asset investments, ending a six-week run of consecutive inflows, according to CoinShares. The crypto investment group ascribed the trend to the likeliness of further interest rate increases by the US Federal Reserve.

Traders are also worried that the heavy clouds that have overshadowed the industry for the past 12 months have not fully gone away. Binance, the world’s largest crypto exchange, is likely to be pulled into a drawn-out lawsuit with the Securities and Exchange Commission.

Another cloud is the fate of Genesis, one of the biggest lenders in the crypto market, which filed for bankruptcy in January owing more than $3bn after the implosion of FTX.

Owner Digital Currency Group, one of the world’s largest owner of bitcoins via its asset management arm, is looking to raise funds to pay back Genesis creditors. DCG said last week some Genesis creditors had walked away from a previously agreed restructuring deal.

The market appears to be “in a holding pattern pending the resolution of DCG’s debt payments”, said Ram Ahluwalia, chief executive of investment adviser Lumida Wealth Management.

The uncertainty, along with the crisis in the US regional banking industry, has underscored for many that the market is still working through its many issues.

“There still isn’t a lot of organic momentum behind cryptocurrencies,” said Safai. “The headline events that propel cryptocurrency prices past sticking points . . are few and far between.”

California lender is latest to seek financial lifeline amid worst industry crisis since 2008

PacWest said it had been approached by potential partners and investors and was reviewing strategic options as the teetering California lender became the latest midsized US bank to seek a financial lifeline amid the worst industry turmoil since 2008.

The bank said in a statement that it was looking at “all options to maximise shareholder value” after its shares plummeted 50 per cent in after-hours trading on Wednesday.

Earlier, two people briefed on the matter said the bank had instructed boutique investment bank Piper Sandler to help it explore strategic options including a sale. No formal sale process has been initiated yet and the bank was also considering raising new capital, the people said.

PacWest’s decision to seek a buyer or new capital, which was first reported by Bloomberg, comes days after the Federal Deposit Insurance Corporation seized First Republic and sold its deposits and assets to JPMorgan Chase.

It comes six weeks after PacWest said it had shored up its access to cash by raising $1.4bn via a lending facility from Apollo-backed investment firm Atlas SP Partners.

Shares of Western Alliance, which has also become a focus of investor angst following the seizure of three banks by US regulators since March, fell by more than a quarter in after-hours trading. Zions Bancorp and Comerica were down roughly 10 per cent.

As with other regional banks, PacWest has drawn negative attention because of its similarities to Silicon Valley Bank, which collapsed in March. These include ties to the tech community, large amounts of uninsured deposits and paper losses on its securities portfolio.

Based in Beverly Hills, PacWest reported late last month that it had lost more than $5bn in deposits during the first quarter but said it had stemmed the outflows and received more than $1bn in inflows since March.

In an update on Wednesday, it said total deposits were $28bn as of May 2, making it significantly smaller than either SVB or First Republic. “Our cash and available liquidity remains solid,” the bank said.

It said 75 per cent of deposits were covered by federal insurance, compared with 71 per cent at the end of the quarter.

The bank’s shares have fallen 77 per cent since the start of March, and the short interest in PacWest shares shot from less than 1 per cent at the end of January to 25 per cent this week.

The bank, which had been eking out small profits, reported a net loss of $1.21bn in the first quarter. It also reported $860mn in unrealised losses in its securities portfolio.

More than three-quarters of its lending is to property, another area of concern in a period of rising interest rates, and 8 per cent is to venture capital. Its venture business had $6bn in deposits at the end of March.

Piper Sandler did not immediately respond to a request for comment.