Three owners of major crypto derivatives exchange BitMEX and five related companies charged with operating an unregistered trading platform and violating multiple regulations, the US Commodity Futures Trading Commission (CFTC) said on Thursday. (Updated on October 2, 03:59 UTC: updates in bold, new reactions have been added.)
The defendants include Arthur Hayes, 34, Ben Delo, 36, and Samuel Reed, 31, who operate BitMEX’s platform through “a maze of corporate entities,” the CFTC added. Moreover, also today, the US Attorney for the District of New York indicted Hayes, Delo, and Reed, along with Gregory Dwyer, 37, on federal charges of violating the Bank Secrecy Act and conspiracy to violate the Bank Secrecy Act, each of which carries a maximum penalty of five years in prison.
Reed [the Chief Technology Officer of BitMEX] was arrested in Massachusetts on Thursday, and will be presented in federal court there, the Department of Justice said, adding that Hayes, Delo, and Dwyer remain at large.
“One defendant went as far as to brag the company incorporated in a jurisdiction outside the US because bribing regulators in that jurisdiction cost just ‘a coconut.’ Thanks to the diligent work of our agents, analysts, and partners with the CFTC, they will soon learn the price of their alleged crimes will not be paid with tropical fruit, but rather could result in fines, restitution, and federal prison time,” FBI Assistant Director William F. Sweeney Jr. said.
Meanwhile, the CFTC claims that:
- From at least November 2014, at the direction of Hayes, Delo, and Reed, BitMEX has illegally offered leveraged retail commodity transactions, futures, options, and swaps on cryptocurrencies.
- BitMEX operated a facility for the trading or processing of swaps without having CFTC approval.
- BitMEX violated CFTC rules by failing to implement know-your-customer procedures, a customer information program, and anti-money laundering procedures.
Therefore, the CFTC said it seeks disgorgement of ill-gotten gains, civil monetary penalties, restitution for the benefit of customers, permanent registration and trading bans, and a permanent injunction from future violations of the Commodity Exchange Act.
The commission also claims that BitMEX has facilitated cryptocurrency derivatives transactions with an aggregate notional value of trillions of dollars, and has earned fees of more than over USD 1bn since beginning operations in 2014.
“Much of this volume, and related transaction fees, derives from the operation of the platform from the US and its extensive solicitation of and access to US customers,” the Commission said.
According to Heath P. Tarbert, Chairman of the CFTC, they can’t allow “bad actors that break the law to gain an advantage over exchanges that are doing the right thing by complying with our rules.”
“This action shows the CFTC will continue to work vigilantly to protect the integrity of these markets,” said Division of Enforcement Director James McDonald.
BitMEX responded by saying that they strongly disagree with the charges and intend to “defend the allegations vigorously.”
“From our early days as a start-up, we have always sought to comply with applicable US laws, as those laws were understood at the time and based on available guidance,” the company said in a blog post, adding that the platform is operating “entirely as normal and all funds are safe.”
Crypto friends, Let’s remember that you are innocent to proven guilty. It’s a cornerstone of American justice. I ha… https://t.co/Kghv0jG7d8
— Mike Novogratz (@novogratz)
@jchervinsky What does this mean for Binance? They also allow US traders to use leverage via VPN w/ no KYC/AML. Won… https://t.co/jnnSqEQn1B
— McNealy (@McNealy31163215)
The implications of this will be massive. Some large foreign exchanges still allow US customers to use the exchange… https://t.co/MN6d2T3gra
— Larry Cermak (@lawmaster)
Now we get to see if BitMEX’s multisig setup is nation state resistant. https://t.co/sGf2xkzYxB
— Jameson Lopp (@lopp)
Meanwhile, as reported in July 2019, back then, the CFTC was already investigating whether BitMEX broke rules by allowing Americans to trade on the platform.
In August this year, the company announced that it will ask all its customers to complete ID checks within the next 6 months if they want to to continue trading on the platform.
“The game has changed, and so have we; keep a stiff upper lip,” said Arthur Hayes back then.
Bitcoin (BTC) is trading at USD 10,627 (03:56 UTC), recovering some of its losses after it dropped below USD 10,500 on Thursday. The price is still down by almost 2% in a day and less than 1% in a week.
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