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CFTC Charges BitMex With Illegally Operating Derivatives Exchange

Not being incorporated in the U.S. did not help the popular platform. CFTC Charges BitMex With Illegally Operating Derivatives Exchange

Bitcoin Drops To $10,446.83 As CFTC Charges BitMex With Illegally Operating Derivatives Exchange

The United States Commodity Futures Trading Commission, or CFTC, has charged derivatives exchange BitMEX with operating an unregistered trading platform and violating Anti-Money Laundering regulations.

According to a statement released Thursday, the CFTC filed a civil enforcement action in the Southern District of New York against five entities and three individuals who allegedly own and operate the exchange.

Related:

Roubini AKA Dr. Doom vs. BitMEX’s Arthur Hayes Debate Bitcoin

The individuals charged include Arthur Hayes, publicly known as the CEO of BitMEX, as well as Ben Delo and Samuel Reed. The CFTC alleges that these individuals are owners and operators of BitMEX through a “maze of corporate entities.”

The aforementioned corporate entities, which are also cited as defendants in the case, are HDR Global Trading Limited, 100x Holding Limited, ABS Global Trading Limited, Shine Effort Inc Limited, and HDR Global Services (Bermuda) Limited (BitMEX).

The CFTC seeks disgorgement, or restitution of all “ill-gotten gains,” civil monetary penalties, permanent trading bans and injunctions against future violations.

The commission believes that BitMEX has illegally offered leveraged trading services to retail traders to the tune of $1 trillion in notional value since its inception in 2014. Despite its success, the CFTC believes that the exchange failed to take “the most basic compliance procedures.” These include failure to register with the commission and the lack of Know Your Customer and Anti-Money Laundering procedures.

In addition to civil charges, the U.S. attorney for the District of New York indicted Hayes, Delo, Reed and Gregory Dwyer, BitMEX’s head of business development, for violating and conspiring to violate the Bank Secrecy Act. If convicted, the executives could face a maximum of five years in prison and a $250,000 fine.

According to FBI Assistant Director William Sweeney, “One defendant went as far as to brag the company incorporated in a jurisdiction outside the U.S. because bribing regulators in that jurisdiction cost just ‘a coconut.’ Thanks to the diligent work of our agents, analysts, and partners with the CFTC, [the defendants] 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.”

A statement from the Department of Justice reveals that Reed, BitMEX’s chief technology officer, was arrested on Thursday morning in Massachusetts. Hayes, Delo and Dwyer “remain at large.”

Reports surfaced as early as July 2019 that the CFTC was investigating the exchange, in large part due to speculation that U.S. residents were able to use the platform despite a formal ban. BitMEX’s terms of service explicitly prohibit residents of the U.S., certain provinces in Canada, China and a host of other countries from using the exchange.

BitMex Denies CFTC And DoJ Allegations, Says Trading Will Continue

Despite criminal charges from the DOJ and at least one arrest of its leadership, Bitmex promises to continue operating as usual.

In a blog post published Thursday afternoon, Bitmex lashed out at charges that the Commodity Futures Trading Commission and Department of Justice filed against the exchange and its management earlier today.

Bitmex’s statement claimed that “From our early days as a start-up, we have always sought to comply with applicable U.S. laws, as those laws were understood at the time and based on available guidance.”

What exactly “applicable U.S. laws” are will likely be central to the case. Bitmex has long maintained that it does not serve customers in the U.S., though others before the CFTC and DOJ have argued that this a lie. The CFTC’s case rests on Bitmex’s failure to register with the commission as a derivatives exchange in the U.S.

The DOJ, on the other hand, argues that Bitmex deliberately failed to implement effective know-your-customer and anti-money laundering programs, in violation of the Bank Secrecy Act. Both agencies assert that Bitmex had years of warning that their operations were illegal.

In its post denying the charges, Bitmex also assured users that trading will continue as usual. This is despite the fact that the DOJ arrested at least one of Bitmex’s founders, Samuel Reed, earlier today.

Tune in for Cointelegraph’s livestream on the Bitmex case starting tonight at 5:00 PM EST/21:00 UTC.

Updated: 10-1-2020

3 Reasons Why The CFTC Action Against BitMEX Will Not Crash Bitcoin Price

Bitcoin price declined by 4% after the CFTC revealed charges against BitMEX but BTC remains bullish in the long term.

Within the last few hours Bitcoin (BTC) price plummeted as the U.S. Commodities and Futures Trading Commission (CFTC) charged BitMEX with facilitating money laundering and operating an illegal cryptocurrency derivatives exchange. An even larger shock occurred as authorities announced the arrest of Samuel Reed, one of the co-founders of BitMEX.

BitMEX has been the most dominant Bitcoin futures exchange for a long time, at least until March 2020 when the massive $1 billion Black Thursday liquidation pulled the price below $3,750. In recent months, new competitors like Binance Futures and ByBit have significantly increased their market share.

Although the industry expected that charges against BitMEX would come one day, the arrest of Reed is an unexpected surprise.

Immediately after the news broke, BTC price plunged from $10,883 to $10,437, a 4.11% drop.

Fortunately, there are several factors that could aid the recovery of Bitcoin in the short term. The catalysts are the short duration of the current correction, Bitcoin’s previous reactions to regulatory threats, and the $10,500 support holding for the moment.

Bitcoin sees a rapid and intense fall in a short period

The price of Bitcoin declined by more than 4% in two hours, a level of volatility it does not typically see.

Usually, when Bitcoin falls with such intensity, it causes a cascade of liquidations. Since many trades in the futures market are highly leveraged, it leads to a loop of long contract liquidations, resulting in a larger fall.

This time around, open interest and the volume in the futures market is significantly lower. There are fewer overleveraged trades actively open in the market and this reduces the probability of a massive correction.

History Shows Regulation-Induced Downturns Are Points Of Recovery

Over the years the cryptocurrency market has endured many negative regulatory actions enacted by governments across the world, but, as Bitcoin researcher Vijay Boyapati says, BTC strongly recovered from each one.

While the charge against BitMEX could have a short-term bearish implication, in the longer term, Boyapati said a recovery is likely. He said:

“The Bitcoin market has always reacted negatively to major exchange issues or government confiscations. Historically this has always presented a great buying opportunity for Bitcoin. The Department of Justice action against BitMEX will be no different.”

$10,500 Remains A Key Defense Area

For most of August and September, the $10,500 level has acted as a strong level of support. Bitcoin dropped below it briefly at times but quickly rebounded above it and this shows traders are confident that Bitcoin price will be higher in the future.

Currently, traders are suggesting that the short-term trend of Bitcoin remains cautious but neutral in the medium term. Cryptocurrency trader Cantering Clark wrote:

“In the near term, I think this presents some great two-way trade opportunities. Ultimately, a week from now, it’s water under the bridge. This place has a short-term attention span and is quick to react.”

Michael van de Poppe, a full-time trader at the Amsterdam Stock Exchange, echoed a similar point of view. He stated:

“People are responding: ‘Don’t you know about the Bitmex news?’ Yeah, I do know. I also know about the tons of hacks that occurred on cryptocurrency exchanges, which became ‘the’ reason for a drop. I trade levels. News is 99% after due to inside info.”

At the time of writing, Bitcoin price continues to trade within a symmetrical triangle and the $10,500 level is holding as support. For traders who focus on support / resistance levels, $10,200 is an important price to watch.

If the price were to break below this level, many traders still expect the $10,000-$9,800 range to hold as support as buyers excitedly purchased dips to this level all throughout September.

Updated: 10-4-2020

BitMEX Hit By CFTC Enforcement Action for Illegal Crypto Derivatives Trading, AML Violations; Criminal Action Unsealed Simultaneously

BitMEX, a top cryptocurrency exchange that is big in the crypto derivatives sector, is the target of an enforcement action filed by the Commodity Futures Trading Commission (CFTC).

According to the CFTC, a civil enforcement action has been filed in the U.S. District Court for the Southern District of New York charging five entities and three individuals that own and operate the BitMEX with operating an unregistered trading platform and violating multiple CFTC regulations, including failing to implement required anti-money laundering (AML) procedures.

The CFTC says the case is brought in connection with the Division of Enforcement’s Digital Asset and Bank Secrecy Act Task Forces.

Named in the lawsuit include owners Arthur Hayes, Ben Delo, and Samuel Reed. The CFTC says these individuals operate BitMEX’s platform through a maze of corporate entities.

Also named as defendants in the complaint, are HDR Global Trading Limited, 100x Holding Limited, ABS Global Trading Limited, Shine Effort Inc Limited, and HDR Global Services (Bermuda) Limited (BitMEX).

The CFTC alleges that BitMEX’s platform has received more than $11 billion in Bitcoin deposits and made more than $1 billion in fees, while conducting significant aspects of its business from the U.S. and accepting orders and funds from U.S. customers.

Simultaneously, a criminal case was unsealed that targets BitMEX related to federal charges of violating the Bank Secrecy Act.

CFTC Chairman Heath P. Tarbert commented on the action:

“Digital assets hold great promise for our derivatives markets and for our economy. For the United States to be a global leader in this space, it is imperative that we root out illegal activity like that alleged in this case. New and innovative financial products can flourish only if there is market integrity. We 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.

Division of Enforcement Director James McDonald added:

“As the CFTC has made clear, registration requirements are a cornerstone of the regulatory framework that protects Americans and U.S. financial markets. Effective anti-money laundering procedures are among the fundamental requirements of intermediaries in the derivatives markets, whether in traditional products or in the growing digital asset market. This action shows the CFTC will continue to work vigilantly to protect the integrity of these markets.”

CFTC Commissioner Brian D. Quintenz issued the following statement on the news:

“I commend the Division of Enforcement for their tireless efforts to ensure that market participants, especially exchanges and intermediaries, comply with the Commodity Exchange Act and CFTC Regulations and don’t skirt those rules to the disadvantage of U.S. customers and law-abiding market participants.

As a derivatives market regulator that supports innovation and ingenuity, it is imperative that we actively police trading platform activity and remove the bad apples so that legitimate, law-abiding marketplaces can flourish.

We will not stand for any participant brazenly flouting our rules. I look forward to the successful resolution of this matter and the beneficial impact it will have in this market by holding those who deliberately ignore the law accountable.”

The CFTC 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 (CEA).

The criminal action alleges that since 2014, BitMEX has illegally offered leveraged retail commodity transactions, futures, options, and swaps on cryptocurrencies including Bitcoin, Ether, and Litecoin, allowing traders to use leverage of up to 100 to 1 when entering into transactions on its platform.

Allegedly, BitMEX has facilitated cryptocurrency derivatives transactions with an aggregate notional value of trillions of dollars, and has earned fees of more than over $1 billion since beginning operations in 2014.

The complaint alleges that BitMEX has failed to implement the most basic compliance procedures required of financial institutions that impact U.S. markets. Much of the trading volume, and related transaction fees, derives from the operation of the platform from the U.S. and its extensive solicitation of and access to U.S. customers, the complaint alleges.

Updated: 10-8-2020

BitMEX Exchange Operator Shuffles Leadership In Wake Of Criminal Charges

BitMEX’s operator has allocated new leadership roles with immediate effect.

The operator of crypto derivatives exchange BitMEX has announced a sweep of its top leadership, after United States authorities charged its founders with failing to prevent money laundering and operating an unregistered trading platform illegally.

On Oct. 8, BitMEX’s operator, 100x Group, announced that the exchange’s three co-founders, all of whom were charged in the case, will no longer hold executive roles at 100x: Arthur Hayes, Samuel Reed and Ben Delo. Greg Dwyer, the fourth executive to be charged, will take a leave of absence from his role as head of business development.

To replace Hayes, 100x Group has announced a new interim CEO , Vivien Khoo. Khoo was until now 100x Group’s chief operating operator. She first joined the company in 2019, after serving as managing director, Asia-Pacific compliance, at Goldman Sachs, and has a background at the Hong Kong Securities and Futures Commission.

100x Group commercial director Ben Raddclyffe will take on expanded responsibilities for client relationship handling and oversight of financial products. Radclyffe has 20 years’ experience in finance and trading at Deutsche Bank, UBS and Tower Research Capital.

In an official comment, 100x Group chair David Wong has said the leadership “are well-placed to continue the growth and development of the 100x Group, including completion of the BitMEX User Verification Programme,” adding:

“It is business as usual for us and we thank all clients for their continued support.”

For more insight into the significant challenges that BitMEX’s “business as usual” could face, and its intersection with wider regulatory developments in crypto, you can catch up on Cointelegraph’s coverage of the case as it unfolded earlier this week.

Updated: 10-9-2020

BitMEX Founder And Ex-CTO Out On $5M Bail Bond Until Court Appearance

October has been a dramatic month for the top brass of BitMEX crypto derivatives exchange, whose founders face multiple charges from U.S. authorities.

BitMEX’s co-founder and former chief technical officer, Samuel Reed, has signed a $5 million unsecured appearance bond for his release from custody pending court proceedings.

Reed had been arrested by the United States Department of Justice in Massachusetts on Oct. 1 for flouting money laundering rules in violation of the Bank Secrecy Act, as well as illegally offering derivatives trading to U.S. retail customers.

Reed’s fellow co-founders and colleagues, Arthur Hayes, Ben Delo, and Gregory Dwyer, all indicted with the same charges, remain “at large,” according to the DoJ.

According to the court documents, which were approved on Oct. 1, Reed’s $5 million bond will be forfeited if he fails to appear in court, or does not surrender to serve any sentence the court may impose. Under the terms of the defendant’s agreement, Reed has deposited $500,000 in cash with the court.

In the DoJ charges, Reed, Hayes, Delo, and Dwyer were accused of operating a “purportedly ‘off-shore’ crypto exchange, while willfully failing to implement and maintain even basic anti-money laundering policies.” In so doing, they allegedly allowed BitMEX to operate as “a platform in the shadows of the financial markets.”

Alongside the DoJ’s charges, the U.S. Commodity Futures Trading Commission filed a civil enforcement action in the Southern District of New York against Reed, Hayes, Delo, and several BitMEX-affiliated corporate entities.

Yesterday, one of these entities, BitMEX operator 100x Group, announced that the three co-founders would no longer hold executive roles and reshuffled staff to replace them with immediate effect. Dwyer, who was implicated in the DoJ’s action, but not the CFTC’s, will be taking a leave of absence from his role as head of business development.

Following news of the charges, some crypto commentators have criticized BitMEX for hurting the industry’s reputation as a whole and potentially hardening regulators’ stance towards the sector.

Updated: 10-12-2020

BitMEX Operator Hires Chief Compliance Officer Amid US Criminal Charges

The hire comes after BitMEX’s founders were charged with failing to prevent money laundering and operating an unregistered trading platform illegally in the United States.

The operator of crypto derivatives exchange BitMEX, 100x Group, has hired a seasoned Anti-Money Laundering (AML) specialist, Malcolm Wright, as its chief compliance officer.

In an announcement on Oct. 12, the 100x emphasized Wright’s profile as the current chairman of the Advisory Council and AML Working Group at Global Digital Finance, and as a speaker covering key topics that include the Financial Action Task Force’s Recommendations for Virtual Asset Service Providers.

100X Group had last week reshuffled its top leadership, removing BitMEX’s co-founders Arthur Hayes, Samuel Reed and Ben Delo from executive roles. Hayes, Reed and Delo were all charged in a civil enforcement action from the United States Commodity Futures Trading Commission for operating an unregistered trading platform in the U.S. and violating AML regulations.

The Department of Justice has, in parallel, pressed criminal charges against the co-founders, as well as their colleague, Geoff Dwyer, who has subsequently taken a leave of absence from his role as head of business development.

Without explicit reference to the recent charges, 100x Group has officially said that “Malcolm’s appointment is a noteworthy milestone for us as we move towards completion of our User Verification Programme and further enhance our compliance function.”

Wright’s LinkedIn profile indicates he has spent almost two and a half years at Global Finance, in parallel to his roles as an advisory board member for London-based Commercial Passport KYC and as associate fellow at the Royal United Services Institute, which contributes to policy debates on financial crimes. He is also the founder of the Financial Crime Compliance advisory and a former chief compliance officer at Diginex and EQUOS.

100x Group faces a steep challenge in rehabilitating the exchange’s image. Commentators claim the charges against the BitMEX team have cast their shadow on the wider industry and could trigger a regulatory backlash against the crypto space.

Updated: 10-14-2020

BitMEX Charges Send ‘A Message’ To Global Exchanges: Crypto Mom

The SEC Commissioner said the recent legal action taken against BitMEX shows the need for the international industry to take AML regulations seriously.

United States Securities and Exchange Commissioner Hester Peirce — better known as “Crypto Mom” — believes the recent action against BitMEX may be a wake up call for crypto firms.

In an interview with “Unchained Podcast” on Oct. 13, Peirce told host Laura Shin that the recent charges laid against BitMEX by the U.S. Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC) has put the international crypto industry on notice about U.S. anti-money laundering (AML) and know your customer (KYC) regulations.

“I think that the message has been coming to the industry fairly loud and clear on the AML/KYC front, and I’m sure it will continue,” said Pierce.

“It’s definitely sending a message to the crypto world that when there are U.S. users of a product or a service, there’s going to be enforcement of U.S. laws.”

On Oct.1, the CFTC filed a civil enforcement action against BitMEX and three of its executives for violating AML regulations. In addition, the DOJ filed criminal charges against four executives, including founder Arthur Hayes, for violating the Bank Secrecy Act. Hayes and two of his colleagues remain at large as of this writing, while BitMEX’s former chief technical officer, Samuel Reed, is out on bail.

Pierce also discussed the SEC’s apparent resistance to a Bitcoin exchange-traded fund (ETF). Such a product would offer a regulated means for institutional investors to access crypto without the risk of holding the underlying assets.

Though the Bermuda Stock Exchange announced it has approved a Bitcoin ETF in September, that’s outside the SEC’s jurisdiction. The Winklevoss twins, Wilshire Phoenix, and NYSE broker Arca have submitted proposals for Bitcoin ETFs with the SEC, and the commission has consistently rejected all of them over fears of market manipulation.

However, Crypto Mom believes an ETF should be “judged on its own merits” by the regulatory body. Bitcoin ETFs, she said, hold a lot of interest among investors and could be an easy way for people to get exposure to the cryptocurrency.

She Criticized The Commission’s Resistance To A Bitcoin ETF As Unfair To Investors:

“In the past I think [the SEC has] taken an approach that is a merit regulation approach and is saying ‘we don’t think that investors can make wise decisions for themselves so we’re just going to cut this product off from them altogether.’ It just doesn’t make any sense to me.”

Peirce started her second term at the SEC in August and will remain at the commission until 2025.

Updated: 11-12-2020

BitMEX Crypto Exchange Steps Up AML And Trade Surveillance Measures

New technology will help screen out bad actors, BitMEX says.

BitMEX, one of the world’s biggest Bitcoin (BTC) trading platforms, continues to strengthen its Anti-Money Laundering measures in the aftermath of its criminal charges in the United States.

According to a Nov. 12 blog post, BitMEX has partnered with software and compliance firm Eventus Systems to improve its trade surveillance and AML transaction capabilities.

Per the announcement, Eventus Validus‘ technology will be integrated into BitMEX’s existing trade surveillance and AML processes in order to provide a “safe and secure trading environment” for its users. “We will be able to more efficiently screen out bad actors and increase proactive monitoring for unauthorized trading activity on the BitMEX platform,” the blog post reads.

Malcolm Wright, BitMEX’s newly hired chief compliance officer, noted that the selection of Eventus is an important part of the company’s plans to further develop their compliance capabilities:

“Choosing Eventus is part of our ongoing commitment to achieve this vision as we execute signature initiatives like our User Verification Programme.”

BitMEX’s latest AML move is another effort to step up its compliance processes as it faces criminal charges by the U.S. Commodity Futures Trading Commission.

On Oct. 1, the CFTC charged derivatives exchange BitMEX with operating an unregistered trading platform and violating AML regulations. Alongside the CFTC’s charges, the Department of Justice also argued that BitMEX failed to implement Know Your Customer and AML programs, violating the Bank Secrecy Act.

BitMEX’s executives subsequently denied the allegations, claiming that it will continue operating as usual, but the exchange has hired a new chief compliance officer and pushed a new KYC verification program. Users that do not complete the KYC program will not be able to withdraw funds from BitMEX after Dec. 4, 2020.

Updated: 12-04-2020

Holding Group Behind Crypto Exchange BitMEX Names Höptner CEO

The holding group behind BitMEX has appointed Alexander Höptner as chief executive officer, two months after the founders of the cryptocurrency exchange were charged with skirting U.S. laws that prevent money laundering.

Höptner, 50, will lead 100x Group, the holding group for BitMEX owner HDR Global Trading Ltd., according to a statement from the company. He joins from Boerse Stuttgart GmbH and Euwax AG, where he was CEO.

“Crypto is a very quickly developing market,” Höptner said in an interview, adding growing adoption and institutional interest as well as the prospect of regulatory change make the sector interesting for “a classical exchange guy like me.”

Höptner’s appointment comes at a time when the cryptocurrency market is enjoying a bull run. The Bitcoin price has just set a fresh record, and the broader Bloomberg Galaxy Crypto Index is up more than 200% year-to-date.

Höptner, who earlier worked at Deutsche Boerse AG for about 15 years, is likely going to be based in Singapore.

Updated: 1-7-2021

After Know Your Customer Debacle, BitMEX Reports 100% Of Users Are Verified

Controversial crypto derivatives trading platform BitMEX says its entire user base has completed the obligatory Know Your Customer process.

BitMEX has announced the completion of its user verification program, becoming one of the largest crypto trading platforms with a fully certified customer base.

As part of the process to verify its entire use base, BitMEX says open positions held by unverified accounts have been closed.

Back in Aug. 2020, the platform revealed plans to undertake a comprehensive user identity verification exercise. The move came amid increasing regulatory scrutiny over the platform’s notoriously lax Know Your Customer, or KYC, policies.

As previously reported by Cointelegraph, the United States Commodity Futures Trading Commission charged BitMEX for illegally operating a derivatives trading desk. The New York District Attorney also brought up criminal charges against some of the company’s principal actors including former CEO Arthur Hayes.

In response, BitMEX announced plans to revamp its Anti-Money Laundering and trade surveillance protocols in November 2020. According to Thursday’s announcement, user verification has been mandatory for deposit, trading and withdrawal functions since early December 2020.

As part of the announcement, BitMEX also noted that $100 billion has been traded on the platform since achieving full user verification status.

BitMEX CEO Alexander Höptner said that the move was a major step in becoming a high-performance platform:

“It places us in an advantageous position to capitalise on the surge of users – both retail and institutional – who are seeking a platform on which to trade crypto derivatives confidently without sacrificing security, liquidity, or performance. It marks a bright start for BitMEX in 2021.”

Höptner, the former CEO of German stock exchange Borse Stuttgart GmbH replaced Hayes as BitMEX CEO back in Dec. 2020.

BitMEX transitioning to full user KYC status offers a glimpse of government regulators’ increasing level of scrutiny for crypto exchanges. Indeed, gone are the days of the cryptocurrency “Wild West” where platforms operated with little to no oversight.

With regulators demanding stricter compliance measures, attention appears to be shifting to decentralized exchanges, or DEXs, which saw a 1,000% spike in trading volumes back in Q3 2020.

Some of these decentralized platforms are now offering margin trading with the added advantage of zero KYC steps to ensure anonymity. Noncustodial crypto exchange ShapeShift has even transitioned to becoming a DEX onramp, ditching KYC for its users in the process.

Updated: 3-2-2021

Crypto Derivatives Platform FTX Now Supports Deposits via PayPal

The new payment option allows users to deposit many currencies “instantly,” the exchange’s CEO said.

Customers of the cryptocurrency derivatives platform FTX can now use PayPal to top up their trading accounts.

* FTX CEO Sam Bankman-Fried tweeted Tuesday that users can get “instant” payments to their accounts if they use the PayPal option.

* Most currencies are supported by the payments giant, and credit card payments can also be made through PayPal, Bankman-Fried said.

* He cautioned that, due to PayPal’s fees, larger payments would be cheaper for users if sent to accounts with bank wires.

* FTX is noted for offering innovative derivatives products. It previously launched the S**tcoin Futures Index as a way to short alternative cryptocurrencies; “TRUMP” and “BIDEN” futures ahead of the 2020 U.S. presidential election; and a derivatives contract based on the Airbnb initial public offering.

* PayPal moved into the crypto space last year, sending markets soaring when it announced it would allow users to buy and sell cryptocurrency as well as provide merchant services.

Updated: 3-3-2021

BitMEX’s Arthur Hayes And Ben Delo Negotiate Surrender To U.S. Authorities

Court transcripts have revealed that BitMEX’s fugitive executives Arthur Hayes and Ben Delo are negotiating a surrender with U.S. authorities.

The former CEO of crypto derivatives exchange BitMEX, Arthur Hayes, is in negotiations to surrender to U.S. authorities next month concerning charges that authorities levied against four of the exchange’s executives and co-owners in October.

Transcripts of a court teleconference dated Feb. 16 indicate Hayes will surrender to the U.S. in Hawaii on April 6. Hayes and his fellow executives are accused of violating the Bank Secrecy Act by the U.S. Department of Justice and the Commodity Futures Trading Commission.

The transcript details the assistant U.S. attorney Jessica Greenwood’s comments to the judge presiding over the case, with Greenwood indicating she has been in talks with Hayes regarding the anticipated voluntary surrender. Hayes is currently located in Singapore, with the attorney noting Hayes hopes to continue residing abroad but will appear within the United States for proceedings should the trial go to court.

“We have discussed with counsel how to arrange for a voluntary surrender, and he has proposed appearing within the United States in Hawaii and having his initial appearance there and then,” she said, adding:

“The idea would be that he would appear initially in Hawaii, then appear before your Honor remotely, and then he would continue to reside abroad with travel to the United States for appearances as needed and, of course, if there is a trial, that he would appear within the United States for that trial in New York.”

Greenwood also revealed that BitMEX co-owner Ben Delo intends to surrender in New York by the end of the month. However, she noted they are currently working with the FBI and Border Patrol to obtain immigration authorization allowing him to travel to the United States, despite Delo currently being subject to a U.K. travel ban.

The attorney also stated that while fellow co-owner Greg Dwyer has declined to surrender, extradition proceedings have been initiated to bring him back from Bermuda.

“With respect to the remaining three defendants, […] we’ve been in contact with counsel discussing the possibility of appearing. They’ve all made representations about for when and how they’ll appear,” Greenwood said. However, she added:

“We have no guarantees at this point that any of those things will happen.”

BitMEX CTO, Samuel Reed, was arrested in Massachusetts as the charges were being levied against BitMEX in October. Reed was released from custody after a $5 million bond was paid that same month, with Reed agreeing to comply with sentencing proceedings.

In response to the hearing, the judge determined it wasn’t “reasonably possible” for a motion and trial schedule to be established. The judge scheduled a follow-up conference for May.

Last month, Hayes broke months of silence to post an article to BitMEX’s official blog calling for a boycott of legacy finance in response to trading platforms shutting down trade amid the GameStop pump engineered by subreddit, r/WallStreetBets.

BitMEX Co-Founder Arthur Hayes Offers To Surrender To US Authorities In Hawaii

Under a proposal, Hayes would be allowed release on a $10 million bond secured by $1 million in cash.

Arthur Hayes, founder and former CEO of BitMEX, says he will surrender to U.S. authorities to face charges the cryptocurrency derivatives exchange facilitated unregistered trading and other violations.

Under a proposal sent to Judge John G. Koeltl at the U.S. District Court in New York Tuesday and agreed upon with the U.S. in principle, Hayes would be allowed release on a $10 million personal recognizance bond secured by $1 million in cash and co-signed by his mother.

Hayes intends to surrender in Hawaii on April 6, where the local FBI office would transport him to the courthouse. He would be allowed to keep his passport and stay at his home in Singapore and have pre-approved travel to the U.S.

Following his initial court appearance, Hayes would stay in Hawaii for a quarantine period before returning to Singapore. Later in the court process, he says he would travel to New York for court appearances and meetings with lawyers.

In October, BitMEX and co-founders Hayes, Samuel Reed and Ben Delo were charged with violating the Bank Secrecy Act and conspiracy to violate the act by the U.S. Department of Justice.

At the same time, the Commodity Futures Trading Commission alleged that BitMEX received some $11 billion in bitcoin (BTC, +0.25%) deposits and made more than $1 billion in fees “while conducting significant aspects of its business from the U.S. and accepting orders and funds from U.S. customers.”

Hayes and other co-founders left their executive positions at BitMEX a week later. Delo pleaded not guilty after surrendering to authorities on Monday.

Updated: 3-16-2021

BitMEX Executive Surrenders In New York, Pleads Not Guilty

BitMEX’s co-owner, Ben Delo, has pleaded not guilty after surrendering to U.S. authorities in New York.

Ben Delo, one of the founders and co-owners of embattled crypto derivatives exchange BitMEX, has surrendered to United States authorities in New York.

According to Bloomberg, Delo was arraigned remotely before U.S Magistrate Judge Sarah Cave during a proceeding on Monday. He pleaded not guilty to all charges and was released on a bail bond of $20 million.

The bail terms stipulate that he is permitted to return home to the United Kingdom and await trial.

Delo’s surrender was part of an agreement negotiated with U.S authorities in February. The terms were coordinated with the Federal Bureau of Investigation and the Border Patrol to permit Delo entry into the United States despite being subject to a travel ban from U.K. authorities. Rachel Miller, a spokesperson for Delo, stated:

“The charges against Ben are unfounded and represent unwarranted overreach by the U.S. authorities. Ben intends to defend himself against the charges and clear his name in court.”

Delo and fellow BitMEX executives Arthur Hayes, Samuel Reed and Greg Dwyer are accused of operating an unregistered trading platform and violating U.S. Anti-Money Laundering laws by providing unlicensed services to U.S. citizens.

Delo is the second BitMEX executive to face authorities following the arrest of former chief technology officer Reed in October 2020. Reed was released from custody the same month after posting a $5 million bond and agreeing to comply with court proceedings.

The exchange’s former CEO, Hayes, is currently located in Singapore but is cooperating with authorities to surrender in Hawaii on April 6.

According to transcripts from a court teleconference dated Feb. 16, U.S. Attorney Jessica Greenwood noted that Bermuda-based fellow co-owner Dwyer has declined to surrender. However, extradition proceedings have been initiated to return Dwyer to face the charges in the United States.

Updated: 4-15-2021

High Stakes In U.S. Case Against Crypto Rebel BitMEX Co-Founder Arthur Hayes

The prosecution of BitMEX co-founder Arthur Hayes could lay down legal markers as digital currency moves into the mainstream.

Ever since Arthur Hayes became a star in the Bitcoin universe, he’s been called many things, from trailblazer to anarchist. On April 6 the former chief executive officer of crypto exchange BitMEX surrendered to U.S. authorities in Hawaii to face a more consequential label: alleged criminal. Six months ago, prosecutors accused him and three others of failing to implement adequate money laundering controls. Hayes pleaded not guilty and was released on $10 million bond pending federal court proceedings in New York.

His legal troubles come at a pivotal moment for the asset he championed. Regulators as well as Wall Street are stepping in to remake the crypto industry as the value of Bitcoin surges. It recently traded at more than $60,000, up from about $7,000 a year ago.

A 35-year-old American who’s long lived in Asia, Hayes had no problem playing the crypto rebel who charged through the guardrails of traditional finance. In 2014 he launched BitMEX, where traders could invest not in Bitcoin itself but in contracts linked to its price moves. (The name is an apparent nod to older markets such as Nymex or Comex where traders swap oil or metals futures.)

Contracts can allow traders to take positions quickly, to bet on prices falling as well as rising, and to use leverage to magnify their potential return and risk.

“I just loved the fact that with Bitcoin there wasn’t much out there at that time,” the former Citigroup Inc. equities trader told Bloomberg News in a 2018 story. “It was an opportunity to do something on my own, to take some risk, rather than going to some structured, monolithic corporation.”

BitMEX became a force in the burgeoning crypto industry, handling about $65 billion a month in trades by the summer of 2020. Hayes became rich, with some media organizations reporting that he and his two co-founders had become billionaires.

BitMEX, which still operates with offices in Hong Kong and elsewhere, permits traders to take on bets leveraged up to 100 times, a risky way to play a volatile asset. It doesn’t handle normal currency; investors fund their accounts with Bitcoin.

Under Hayes, prosecutors say, BitMEX didn’t necessarily ask a lot of questions of people who wanted to trade there. The indictment says its website once advertised that “no real name” or other forms of verification were needed to get an account, just an email address.

Hayes’s motto has been, “I’m a businessman, not a priest.” He spoke of crypto as one of the world’s last free markets, saying at a 2019 industry conference in Taipei that “Bitcoin represents an opportunity—instead of using courts, laws, and violence to govern how money is transferred between individuals and parties, we use open source software, cryptography, and math.”

Discussing traditional financial institutions’ criticism of Bitcoin as a tool of criminals and money launderers, Hayes told Bloomberg News in the 2018 story: “I don’t think banks have a leg to stand on.” (Numerous big banks have paid hefty fines for lapses in anti-money-laundering rules.)

He said Bitcoin’s technology made transactions more transparent than cash. Hayes incorporated his venture in the Seychelles and at the 2019 forum joked that the main difference between the island nation’s regulators and those in the U.S. was that the Americans cost more to bribe.

That flippancy was on brand for the crypto world but may have proved Hayes’s undoing. The grand jury indictment in New York says, “BitMEX made itself available as a vehicle for money laundering and sanctions violations.” Hayes allegedly knew of claims that hackers who’d ripped off a cryptocurrency exchange were using BitMEX to launder the proceeds of their crime, the court papers say.

He also allegedly had knowledge that Iranian residents could be customers, and Iran is subject to U.S. prohibitions. In both instances, BitMEX didn’t implement an anti-money-laundering policy in response, the indictment says.

“The Department of Justice is sending a clear message”

Hayes and his two co-founders also face civil charges from the Commodity Futures Trading Commission that they ran an exchange without being registered in the U.S. The company was supposed to turn away U.S. customers, but BitMEX solicited them en masse from 2014 through the fall of 2020, says the CFTC. It says BitMEX paid U.S. customers to recruit other clients.

Citing internal emails, the CFTC alleges that BitMEX personnel were well aware U.S. customers were using VPNs—virtual private networks—to cover their tracks.

Co-founders Benjamin Delo and Samuel Reed have also pleaded not guilty in the criminal case and were released on bond. Longtime employee and executive Gregory Dwyer, charged criminally but not in the civil matter, is at large; his lawyers say the government knows his location.

Attorneys for all four vow to fight the charges and say the U.S. authorities’ actions are unfounded. “Arthur Hayes is a self-made entrepreneur who has been wrongly accused of crimes that he did not commit,” his lawyers said in a statement.

The case could lay down legal markers as crypto moves fitfully into the mainstream. It often takes authorities a while to catch up with technological leaps in finance, but U.S. regulators have hit other crypto companies with a flurry of civil cases and probes in the past year. Instead of fashioning rules to deal with Bitcoin and its ilk, they are leaning on existing laws.

“The Department of Justice is sending a clear message—if you try and skirt U.S. law and regulations, we will come after you, and not just with a civil action but with a criminal case,” says Braden Perry, a former senior trial attorney at the CFTC who’s now in private practice. He says that as alleged bad actors exit, more conservative financial institutions may become interested in crypto.

Hayes and his co-founders resigned their executive positions. The new executive running BitMEX, Alexander Höptner, has set about changing the company’s policies and tone. BitMEX says it’s verified its active customers’ identities. A statement on its website says it’s now “one of the few crypto derivatives exchanges outside the U.S. to be implementing know-your-customer requirements before a user can complete their initial deposit and first trade.”

In a March interview with Bloomberg News, Höptner said he’s “bringing the crypto side to the regulated world.” A spokesperson for BitMEX’s holding company says the company disagrees with the charges and always sought to comply with “applicable U.S. laws.”

For many people excited about Bitcoin, its ability to put transactions beyond governments’ reach has long been part of the appeal. But the crypto world is changing. “BitMEX had a tremendous impact, no question about it,” says Steve Ehrlich, CEO of Voyager Digital Ltd., a cryptocurrency brokerage in New York.

“I’m a crypto guy, I get it. There are so many people where it’s all about no regulations and power to the people, but that only works until there is a major scandal. You can’t get the masses to adopt something new unless there’s trust.”

Updated: 5-17-2021

Is Bitcoin Nearing Another Black Thursday Crash? Here’s What BTC Derivatives Suggest

Traders are afraid another Black Thursday crash is on the cards, but derivatives data proves the current correction has no resemblance to the March 2020 pullback.

Bitcoin’s 51.4% crash in March 2020 was the most horrific 24-hour black swan event in the digital asset’s history. The recent price activity of the past week has probably resurrected similar emotions for investors who experienced the Black Thursday crash.

Over the past week, Bitcoin’s (BTC) price dropped 29% to reach a three-month low at $42,150. $5.5 billion in long contracts were liquidated, which is undoubtedly a record-high in absolute terms. Still, the impact of the March 2020 crash on derivatives was orders of magnitude higher.

To understand why the current correction is less severe than the one in March 2020, we will start by analyzing the perpetual futures premium. These contracts, also known as inverse swaps, face an adjustment every eight hours, so any price gap with traditional spot markets can be easily arbitrated.

Sometimes, price discrepancies arise during moments of panic due to concerns about the derivatives exchange’s liquidity or market makers being unable to participate during times of extreme volatility.

On March 12, 2020, the Bitcoin perpetual futures initiated a much larger descent than the price on spot exchanges. This move is partially explained by the cascading liquidations that took place, creating a backlog of large sell orders unable to find liquidity at reasonable prices.

The aftermath of the bloodbath resulted in futures perpetual contracts trading at a 12% discount versus regular spot exchanges. BitMEX, the largest derivatives market at the time, went offline for 25 minutes, causing havoc as investors became suspicious about its liquidity conditions.

By comparing this event with the most recent week, one will find that sustainable price discrepancies are very unusual. Even a temporary 12% gap doesn’t occur, even during the most volatile hours.

Take notice of how the perpetual contracts reached a peak 4% discount versus regular spot exchanges on May 13, although it lasted less than five minutes. Market makers and arbitrage desks could have been caught off guard but quickly managed to recoup liquidity by buying the perpetual contracts at a discount.

To understand the impact of those crashes on professional traders, the 25% delta skew is the best metric, as it compares similar call (buy) and put (sell) options’ pricing. When market makers and whales fear that Bitcoin’s price could crash, they demand a higher premium for the neutral-to-bearish put options. This movement causes the 25% delta skew to shift positively.

The above chart displays the mind-blowing 59% peak one-month Bitcoin options delta skew in March 2020. This data shows absolute fear and an incapacity to price the put (sell) options, causing the distortion. Even if one excludes the intraday peak, the 25% delta skew presented sustained periods above 20, indicating extreme “fear.”

Over the past week, the skew indicator peaked at 14%, which isn’t very far from the “neutral” -10% to +10% range. It is indeed a striking difference from the previous months’ negative skew, indicating optimism, but nothing out of the ordinary.

Therefore, although the recent 29% price drop in seven days could have been devastating for traders using leverage, the overall impact on derivatives has been modest.

This data shows that the market has been incredibly resilient as of late, but this strength might be tested if Bitcoin’s price continues to drop.

Updated: 7-8-2021

BitMEX CEO Maps Out Future ‘Living By The Rules’

Alexander Hoeptner says “discussions need to be had” with regulators.

Three former executives of BitMEX will face trial in the U.S. next spring, but Alexander Hoeptner, the current CEO, said the company, which operates a crypto peer-to-peer network and a derivatives trading exchange, plans to “live by the rules,” stressing the importance of having “active discussions” with regulators.

In an interview Wednesday on CoinDesk TV’s “First Mover,” when questioned about the future of BitMEX and what the company has learned from past experiences, Hoeptner said he couldn’t “go into details on what is happening with U.S. regulators.”

“Discussions need to be had with regulators about crypto assets and blockchain,” he said.

“You have to educate the global market on the possibilities, this is something the crypto industry should have taken on themselves,” he said. Regulations imposed in the past no longer “make sense.”

Hoeptner is also the CEO of 100x Group, which is the holding group for HDR Global Trading Ltd., owner and operator of the BitMEX platform. The platform allows customers to leverage up to 100 times their investment, giving them the opportunity to make a huge profit if the price of the cryptocurrency moves up or lose big if the price drops.

When asked whether 100x plans to continue offering large leverage opportunities, Hoeptner said that it’s not the dominating feature of the product.

“On average of what is traded, the leverages are in the single-digit area,” he said. “A very rare and small extent is used at a high leverage.”

Hoeptner said that entering the U.S. market is not on the horizon and that for now, the exchange is focusing on “living by the rules.” The company is based in the Seychelles, an island nation in the Indian Ocean off the east coast of Africa.

Updated: 7-15-2021

Judge Scolds BitMEX Lawsuit Plaintiffs For Offering Him Crypto ‘Basics’ Lessons

The judge urged the plaintiffs to “focus on the task at hand — convincing me that they have stated a plausible claim.”

The California District Judge overseeing a racketeering suit filed against crypto derivatives exchange BitMEX, William H. Orrick, has rebuffed the plaintiffs’ motion offering to provide them with a tutorial on “cryptocurrency basics.”

According to a July 13 report from Law360, the judge responded to Bitcoin Manipulation Abatement LLC (BMA)’s proposal with a one-page order on Tuesday, outlining the offer was “not well taken.”

“Plaintiffs believe that cryptocurrency tutorial will benefit the court. I think not,” Judge Orrick wrote, adding that the plaintiffs should “focus on the task at hand — convincing me that they have stated a plausible claim.”

BMA’s complaint was first filed in May 2020, just weeks after the firm filed lawsuits against Ripple and FTX. The suit against BitMEX is now in its fourth iteration.

The plaintiffs allege that BitMEX’s former parent company, HDR Global Trading Limited, and executives Arthur Hayes, Ben Delo, and Samuel Reed deliberately designed the exchange to “engage in, facilitate, aid, abet, counsel, induce and/or procure a myriad of illegal activities.” BMA alleges BitMEX carried out racketeering, money laundering and wire fraud.

A previous version of the suit was dismissed without prejudice in March. BitMEX has staunchly rejected BMA’s claims.

The United States Department of Justice has accused Delo, Hayes, Reed and BitMEX head of business development Gregory Dwyer of violating the Bank Secrecy Act, having filed complaints against the group in October 2020.

Reed was arrested the same month, while Delo and Hayes voluntarily surrendered to authorities in March and April respectively, before being released on bail. The trio will face trial in March 2022, with Dwyer remaining at large.

Updated: 8-15-2021

BitMEX Will Pay $100M In Penalties To FinCEN, CFTC

Former CEO Arthur Hayes and other executives at the firm are still likely to face charges on alleged violations of the Bank Secrecy Act.

Crypto derivatives exchange BitMEX has agreed to pay up to $100 million to resolve a case from the United States Commodity Futures Trading Commission, or CFTC, and the Financial Crimes Enforcement Network, or FinCEN.

In a Tuesday announcement, the Commodity Futures Trading Commission said the U.S. District Court for the Southern District of New York had entered a consent order for HDR Global Trading Limited, 100x Holding Limited, ABS Global Trading Limited, Shine Effort Inc Limited and HDR Global Services Limited to be charged with illegally operating the BitMEX platform.

As part of the settlement with both the CFTC and FinCEN, BitMEX will pay a $100 million civil monetary penalty “for illegally operating a cryptocurrency trading platform and anti-money laundering violations.”

In addition, the company will be required to hire an independent consultant to conduct a historical analysis of its transactions to determine if it failed to properly report suspicious activity.

“This case reinforces the expectation that the digital assets industry, as it continues to touch a broader pool of market participants, takes seriously its responsibilities in the regulated financial industry and its duties to develop and adhere to a culture of compliance,” said acting CFTC chair Rostin Behnam.

“The CFTC will take prompt action when activities impacting CFTC jurisdictional markets raise customer and consumer protection concerns.”

Though the CFTC announcement mentioned that the settlement stemmed from the case against former CEO Arthur Hayes and other executives at the firm, the individuals are still likely to face charges on alleged violations of the Bank Secrecy Act.

According to a spokesperson for the BitMEX co-founders, Hayes, Ben Delo and Sam Reed were not parties to the CFTC and FinCEN settlement. Hayes has been free on a $10 million bail since surrendering to U.S. authorities in April, while the trial of some of the former executives is scheduled to begin in March 2022.

“BitMEX allowed customers to access its platform and conduct derivative trading without appropriate customer due diligence — collecting only an email address and failing to verify customer identity,” said the Financial Crimes Enforcement Network.

“Despite BitMEX’s public representation that its platform was not conducting business with U.S. persons, FinCEN found that BitMEX failed to implement appropriate policies, procedures and internal controls to screen for customers that use a virtual private network to access the trading platform and circumvent internet protocol monitoring.”

According to FinCEN, BitMEX failed to maintain adequate Anti-Money Laundering safeguards and report 588 instances of suspicious activity to the government agency for more than six years. FinCEN alleged that the exchange conducted at least $209 million in transactions with “known darknet markets or unregistered money services businesses providing mixing services.”

Following the charges first brought in October 2020, BitMEX announced plans to shore up its Anti-Money Laundering and trade surveillance protocols. As of January, the exchange said it had improved its Know Your Customer capabilities, reporting that all previously open positions held by unverified accounts had been closed.

“We are very glad to put this behind us,” said BitMEX CEO Alexander Höptner. “We take our responsibilities extremely seriously, and will continue to actively engage with regulators around the world to ensure that we play a positive role in helping to shape the future of this extraordinary asset class.”

Updated: 1-20-2022

BitMex Founder’s ‘Coconut’ Bribery Claim Just A Joke, Judge Says

When BitMEX co-founder Arthur Hayes was accused in 2020 of allowing money laundering on the cryptocurrency exchange, prosecutors cited a joke he made about using a coconut to bribe officials in the Seychelles, where the company is based, as evidence of his desire to avoid regulation.

But U.S. District Judge John Koeltl on Thursday blocked the government from presenting the “coconut” comment during the criminal trial of Hayes and other BitMEX executives in March.

Hayes “spoke in a plainly jocular fashion” and the video of his comments is “highly inflammatory” because it suggests bribery is taking place, Koeltl said. “There’s no evidence of bribery in the Seychelles, and plainly the relevance of the segment is outweighed by the danger of unfair prejudice.”

The quip was made during a heated debate between Hayes and economist Nouriel Roubini at the Asia Blockchain Summit in July 2019, dubbed the “Tangle in Taipei.” Roubini accused cryptocurrency exchanges of skirting laws by operating in jurisdictions with little oversight.

But Hayes defended the company’s decision to be in the Seychelles, saying BitMEX is subject to regulations even if not located in the U.S.

When asked if he understood that regulators in the Seychelles were “on a different scale” as those in the U.S. and other countries, Hayes replied that in those jurisdictions, “it just costs more to bribe them.” When asked by the event moderator how much he paid to bribe regulators in the Seychelles, Hayes said, “a coconut,” to laughter from the audience.

Hayes, a former equities trader for Citigroup Inc. in Hong Kong, founded BitMEX in 2014 with Benjamin Delo, an Oxford-educated computer scientist who previously developed high-frequency trading systems for JPMorgan Chase & Co., and Samuel Reed, a programmer specializing in web applications.

The three men are scheduled to go on trial on the charges on March 30, while Gregory Dwyer, the company’s first employee and former head of business operations, is being tried separately in October.

The co-founders have asked Koeltl to throw out the case before trial, saying that the charges are a “test case” in which prosecutors are seeking “to enforce criminally two highly technical statutory regimes in a novel set of circumstances where the line between criminal and innocent conduct was unknowable.”

“No person of ordinary intelligence could have understood that the executives of an offshore, direct-access exchange for trading cryptocurrency derivatives, as the indictment alleges BitMEX was, were subject to criminal sanctions under the Bank Secrecy Act for failing to adopt an anti-money laundering program,” the co-founders said.

The case is U.S. v Hayes, 20-cr-500, U.S. District Court, Southern District of New York.

Updated: 2-25-2022

BitMEX Founders Plead Guilty To Bank Secrecy Act Violations

Arthur Hayes and Benjamin Delo will each have to pay a fine for their part in flouting the Bank Secrecy Act and operating what the DOJ called a “money laundering platform.”

The founders of crypto exchange BitMEX have pled guilty to violating the Bank Secrecy Act after a lengthy litigation process with the U.S. Department of Justice (DOJ).

American Arthur Hayes and British Hong Konger Benjamin Delo admitted to “willfully failing to establish, implement and maintain an Anti-Money Laundering (AML) program” at their crypto derivatives and futures exchange, BitMEX.

BitMEX is a Seychelles-based crypto trading platform that offers crypto futures, derivatives and margin trading up to 100x. The exchange once offered its services without any know-your-customer (KYC) or AML verification procedures to Americans.

The DOJ’s Thursday announcement on the case states that such a lack of regulatory compliance essentially caused BitMEX to become a “money-laundering platform.”

Both Hayes and Delo made their guilty pleas ahead of the March trial date, and have agreed to pay $10 million in criminal fines each.

The attorney for the DOJ Damian Williams said that operating a crypto business in the U.S. carries “the obligation for those businesses to do their part to help in driving out crime and corruption.” He continued that BitMEX operated as “a platform in the shadows of financial markets” and that:

“Arthur Hayes and Benjamin Delo built a company designed to flout those obligations; they willfully failed to implement and maintain even basic anti-money laundering policies.”

Adding more fuel to the DOJ’s case was the insinuation that Hayes had bribed the Seychelles local government when BitMEX completed its move there in 2020. He allegedly bragged that the bribery cost him just a coconut.

Although the BitMEX base of operations was in the United States from about 2015 to 2020, Hayes and Delo insisted that no Americans were using the platform. The DOJ proved that claim was not factual. By January 2021, the exchange reported it had verified 100% of its users with a KYC-AML procedure.

Since fully vetting all of its users, BitMEX’s share of Bitcoin futures open interest (OI) has diminished into relative insignificance. In February 2021, there was only about $3.5 billion in OI, almost a third of which came from BitMEX. However, there is now $15.18 billion in OI, according to data from CoinGlass, of which only $482 million, or 3%, comes from BitMEX.

Updated: 3-9-2022

Third BitMEX Founder Pleads Guilty To Anti-Money-Laundering Violation

Samuel Reed is the third company founder to enter a plea bargain with U.S. prosecutors over the cryptocurrency derivatives exchange’s anti-money-laundering failures.

BitMEX co-founder Samuel Reed pleaded guilty and agreed to a $10 million fine over the cryptocurrency derivatives exchange’s anti-money-laundering failures, becoming the third founder of the business to reach a plea deal with U.S. prosecutors.

Mr. Reed, the longtime chief technology officer for BitMEX, entered a plea Wednesday in Manhattan federal court to a charge of violating the Bank Secrecy Act, which requires financial institutions to try to curb illicit uses of their services.

Mr. Reed’s co-founders, Arthur Hayes and Benjamin Delo, accepted identical financial penalties in connection with guilty pleas they entered last month.

Manhattan U.S. Attorney Damian Williams said Wednesday that he wouldn’t allow cryptocurrency exchanges to operate as a “shadow financial system.”

BitMEX, incorporated in the Seychelles, operated in effect as a money-laundering platform, according to prosecutors. The company took on clients without verifying their identities, and then failed to act on reports that the platform was being used to launder crime proceeds, they said.

Though BitMEX had ostensible controls designed to prevent U.S. customers from accessing the platform, Mr. Reed knew those controls were a sham, and BitMEX made substantial profits from U.S.-based trading, prosecutors said.

Mr. Reed has agreed not to appeal if he is sentenced to a prison term of up to six months. His legal team said in a statement that he is pleased to have resolved the case and “looks forward to focusing on the next phase of his life and career.”

BitMEX entered into a $100 million settlement with U.S. regulators in August, promising to keep U.S. customers off the exchange.

The company didn’t respond to a request for comment Wednesday.

 

Updated: 4-4-2022

Crypto Exchange BitMEX Lays Off 75 Workers

The global job cuts will impact about 25% of the company’s workforce and come after plans by a company founded by BitMEX executives to buy a German bank fell through in March.

Crypto exchange BitMEX has laid off 75 workers in a move that comes shortly after plans by a company founded by BitMEX’s CEO and CFO to buy one of Germany’s oldest banks fell through.

* “BitMEX has made changes to our workforce in order to streamline for the next phase of our business,” a BitMEX spokesperson told CoinDesk Monday in an email. “Our top priority is to make sure all employees who will be impacted have the support they require.”

* “The BitMEX platform will continue to operate as normal, and we will not be commenting further at this time,” the spokesperson added.

* A source familiar with the matter said that the layoffs would become effective at the end of April and represented roughly 25% of BitMEX’s workforce. After the cuts, Seychelles-based BitMEX’s global headcount will be 225 people, the source said.

* BXM Operations, a firm founded by BitMEX CEO Alexander Höptner and Chief Financial Officer Stephan Lutz, announced plans to buy one of Germany’s oldest lenders, Bankhaus von der Heydt, in January, but the deal was called off by mutual agreement, German media reported in late March.

* In February, BitMEX founders Arthur Hayes and Benjamin Delo pleaded guilty to violating the U.S. Bank Secrecy Act (BSA). They were accused of operating with poor anti-money laundering (AML) protocols.

 

Updated: 5-4-2022

BitMEX Ex-CEO Hayes Asks For No Jail Time, Freedom To Travel

* Letters To Judge, Including From His Mother, Seek Leniency
* Conviction Stands As A Crypto Precedent, His Lawyer Argues

BitMEX co-founder and former CEO Arthur Hayes, who was prosecuted for failing to police criminal activity on the crypto exchange, is asking for no jail time and permission to live abroad and travel freely.

Hayes, who pleaded guilty in February to violating the Bank Secrecy Act, included a letter from his mother in a bid for leniency from the Manhattan federal judge who will sentence him this month.

His lawyers filed a request for probation, with no home detention or community confinement, after he struck a plea deal that would result in a prison sentence of six to 12 months under federal guidelines.

The 65-page submission by his lawyers included photographs and letters from supporters. The government hasn’t filed a sentencing recommendation yet.

Hayes, BitMEX co-founder Benjamin Delo and former chief technology officer Samuel Reed all admitted they failed to establish an anti-money-laundering program at the exchange. They each agreed to pay a fine of $10 million.

Hayes’s lawyers said his conviction in the emerging area of finance and markets is a precedent the U.S. can use in the prosecution of financial crimes at cryptocurrency trading platforms around the world. Hayes is unlikely to be a repeat offender, the attorneys said.

“This is a landmark case that has already had an extraordinary and well-publicized impact on Mr. Hayes’s personal life and on the BitMEX business that he co-founded,” according to the letter.

The case is U.S. v. Hayes, 20-cr-500, U.S. District Court, Southern District of New York (Manhattan).

Updated: 5-5-2022

US Court Orders BitMEX Founders To Pay $30M For Illegal Trading

Arthur Hayes, Benjamin Delo and Samuel Reed will each pay $10 million for their role operating BitMEX.

A federal judge ordered the three co-founders of BitMEX to pay $30 million total for operating an illegal cryptocurrency derivatives platform and violating money-laundering rules, the Commodity Futures Trading Commission said in a Thursday statement.

The U.S. District Court for the Southern District of New York ordered the platform’s founders – Arthur Hayes, Benjamin Delo and Samuel Reed – to each pay a $10 million penalty.

Updated: 5-17-2022

BitMEX Launches Spot Crypto Exchange To Go Beyond Derivatives

Founded in 2014, BitMEX is one of the world’s oldest crypto trading platforms, but it has never offered spot crypto trading till now.

Global crypto derivatives exchange BitMEX is expanding its platform beyond just derivatives by finally launching a spot crypto trading platform.

BitMEX officially announced on May 17 that its spot crypto exchange, the BitMEX Spot Exchange, is now live, allowing retail and institutional investors to buy, sell and trade cryptocurrencies like Bitcoin (BTC) and Ether (ETH).

At launch, the exchange supports seven pairs of cryptocurrencies, including BTC, ETH, Chainlink (LINK), Uniswap (UNI), Polygon (MATIC), Axie Infinity (AXS) and ApeCoin (APE), all trading against the Tether stablecoin (USDT).

The launch of the BitMEX Spot Exchange comes as the company plans to become one of the top ten largest spot exchanges in the world. The company decided to build its own spot exchange last year in response to the increasing crypto trading demand from its current user base, according to the announcement.

“Today, BitMEX is one step closer to providing our users with a full crypto ecosystem to buy, sell and trade their favorite digital assets. We will not rest as we aim to deliver more features, more trading pairs, and more ways for our clients to take part in the crypto revolution,” BitMEX CEO Alexander Höpner said.

“This is a momentous day for the transformation of BitMEX and our ‘beyond derivatives’ strategy,” BitMEX Spot Exchange vice president Genia Mickhalchenko said. The new ecosystem will include a number of products, including interest bearing products, the exec told Cointelegraph.

Founded in 2014, BitMEX is one of the world’s largest and oldest crypto trading companies and started to provide its services about six years after Bitcoin was launched. Unlike spot exchanges, BitMEX has been mainly focusing on derivatives, allowing users to buy and sell contracts like futures, options and perpetuals on a wide range of crypto assets.

At the time of writing, BitMEX is one of the top 30 biggest derivatives crypto trading platforms, with daily trading volume amounting to $841 million, according to data from CoinMarketCap. BitMEX was ranked one of the biggest derivatives platforms by open interest alongside Binance as of 2020.

BitMEX has faced some legal issues recently, with founders Arthur Hayes and Hong Konger Benjamin Delo pleading guilty to violating the Bank Secrecy Act in February 2022. The court eventually ordered a total of $30 million civil monetary penalties from the three co-founders of the BitMEX crypto derivatives exchange in March.

The firm also reportedly laid off about 75 employees — or a quarter of the company’s staff — in April, following a failed acquisition of the German bank Bankhaus von der Heyd.

Disclaimer: The title of this article was updated to reflect that BitMEX itself was not fined by the court as no BitMEX entity was a party to the CFTC’s case mentioned in the article. Please disregard the information in the article’s URL.

Updated: 5-19-2022

Former BitMEX CEO Arthur Hayes Faces 6 To 12 Months In Jail At Sentencing Hearing Friday

Hayes pleaded guilty to one count of violating the Bank Secrecy Act (BSA) in February, and faces a sentence of up to 12 months in prison.

Former BitMEX CEO Arthur Hayes is set to face sentencing in a federal courthouse in New York on Friday after pleading guilty in February to charges that he willfully failed to implement an anti-money laundering (AML) program at the exchange.

Prosecutors say the lack of know-your-customer (KYC) requirements at BitMEX allowed the company to thrive as a hotbed for criminal activity, including money laundering and sanctions evasion.

Hayes and his BitMEX co-founders, Samuel Reed and Ben Delo, as well as the company’s first employee, Gregory Dwyer, were initially charged in October 2020 with one count each of violating the Bank Secrecy Act (BSA), and another of conspiring to do so.

The four men, as well as BitMEX and other corporate entities, also faced civil suits from the Commodity Futures Trading Commission (CFTC) and the Financial Crimes Enforcement Network (FinCEN) that resulted in monetary penalties. BitMEX was ordered to pay the regulators $100 million; Hayes, Reed, and Delo had to fork over $10 million each.

The criminal charges carry a maximum sentence of five years each, but Hayes’ plea deal with prosecutors reduced the sentencing guidelines to between six and 12 months. He will be sentenced at the U.S. District Court for the Southern District in downtown Manhattan.

Hayes, a U.S. citizen and longtime resident of Singapore, surrendered to U.S. authorities in Hawaii last April, in a deal brokered between his lawyers and federal prosecutors. He was released on a $10 million bond secured by $1 million in cash and co-signed by his mother.

Two Sides of The Story

In a 65-page sentencing memo submitted to the court on May 4, Hayes’ lawyers asked the judge for leniency: probation, with no jail time or house arrest. They also requested that Hayes maintain his freedom to travel internationally and live abroad.

The submission also included a letter from his mother. Hayes’ lawyers argued that the former BitMEX CEO’s life had already been upended by the charges, which they said had “an extraordinary and well-publicized impact on Mr. Hayes’ personal life and on the BitMEX business that he co-founded.”

They also argued that Hayes is unlikely to reoffend.

The government, however, sees things differently. In a sentencing memo submitted on May 12, prosecutors asked the judge to hand down “a significant sentence of incarceration, above the applicable Sentencing Guidelines range of [six] to 12 months.”

Prosecutors say Hayes flaunted BitMEX’s disregard for KYC and AML guidelines, advertising the company’s lack of compliance on the exchanges’ website and in blog posts and media interviews.

This, prosecutors say, attracted “precisely the bad actors which the BSA intends to deter” – and earned Hayes over $100 million.

Hayes’ prominence in the crypto community and his penchant for talking to journalists about his worldview (and his glamorous life on the lam) seems to be a sore spot for prosecutors:

“The defendant chose to use his influence to promote a vision for the crypto industry that was in direct contradiction to the law, and calculated to undermine government regulations,” prosecutors wrote. “The defendant routinely criticized and mocked KYC requirements, and made it clear that he had no interest in complying with them.”

Updated: 5-20-2022

BitMEX Founder Hayes Avoids Prison On Bank Secrecy Charge

* Hayes Pleaded Guilty Over Money-Launder Laxity, Gets Probation
* BitMEX In August Agreed To Pay $100 Million Over Its Practices

BitMEX co-founder Arthur Hayes was spared from prison despite admitting he failed to guard against money laundering at the pioneering cryptocurrency exchange, which the US blames for hundreds of millions of dollars in shady transactions.

On Friday a federal judge sentenced Hayes to two years’ probation, after Hayes and BitMEX’s other founders were charged in 2020 with violating the Bank Secrecy Act, which requires the establishment of such safeguards, including verifying the identities of an exchange’s customers.

Hayes, who was ordered to spend the first six months of his sentence in home confinement, avoided time behind bars even though prosecutors argued that the court had to send a signal.

“This is a very serious offense,” Assistant US Attorney Samuel Raymond told US District Judge John Koeltl in Manhattan before Koeltl pronounced the sentence. “There were real consequences. When individuals like Mr. Hayes operate platforms without anti-money-laundering programs or know-your-customer programs, they become a magnet for people to launder money.”

Derivatives Pioneer

BitMEX — among the first to offer cryptocurrency derivatives, such as futures contracts that allow investors to make leveraged bets — carried out at least $209 million in transactions “with known darknet markets or unregistered money services businesses,” the Treasury Department said in August.

BitMEX agreed to pay $100 million to settle civil allegations that it allowed illegal trades for years and violated rules requiring anti-money-laundering programs, without admitting to or denying the claims.

In his plea deal, Hayes agreed to forfeit $10 million. Despite his conviction, he has remained active in the world of crypto and regularly posts essays outlining his thoughts on issues ranging from market prices to the recent Terra stablecoin meltdown.

Allowing Hayes to stay out of prison “would send a message to him that the cost of doing business is merely a fine, and he could continue to violate the law for huge amounts and pay any fine,” Raymond warned. “This case is being closely watched by cryptocurrency exchanges and other companies around the world.”

Prosecutors and regulators are increasing their scrutiny of digital asset exchanges amid a broader focus on cryptocurrency. Securities and Exchange Commission Chairman Gary Gensler said this month that some platforms are shirking rules and may be betting against their own customers. He has asked lawmakers to increase the agency’s budget as he seeks to require exchanges to register with the SEC.

‘Intellectual Powerhouse’

Hayes told the judge that he took “full responsibility” for his role in BitMEX’s failure to implement the measures.

“I know that my best years are ahead of me,” said Hayes, 36. “I will always have to live with the consequences of these actions. I am ready to turn the page and start again.”

His lawyer, James Benjamin, called Hayes an “intellectual powerhouse” and “charismatic leader” and said prosecutors were trying to make the case a “referendum on abstract principles they seek to endorse,” pursuing a “draconian sentence” to vindicate US policy.

Prosecutors had asked Koeltl to send Hayes to prison for significantly more than a year to help deter similar violations. Hayes sought no jail time and the right to live abroad and travel freely, saying the case itself was a landmark that would help the US prosecute financial crimes at exchanges around the world. Probation officials recommended two years of supervised release.

‘Willful Violation’

“Did BitMEX do a perfect and seamless job on its path from startup to a mature fintech company?” Benjamin said in court on Friday. “No, it did not. There were some bumps in the road.”

As he prepared to mete out Hayes’s punishment, Koeltl said the BitMEX founder was “a sophisticated businessman.”

“He knew these procedures were required to avoid having his company used for money laundering and other illegal purposes,” the judge said. “The crime was more than a simple regulatory oversight.” He called it “a willful violation of the Bank Secrecy Act.”

Hayes and co-founder Benjamin Delo pleaded guilty in February, and Samuel Reed in March, each agreeing to forfeit $10 million. Delo is scheduled to be sentenced next month and Reed in July. Another BitMEX employee charged in the scheme, former head of business development Gregory Dwyer, has pleaded not guilty and is set for trial in October.

Hayes founded BitMEX in 2014 with Delo, a computer scientist who built high-frequency trading systems for JPMorgan Chase & Co., and Reed, a programmer specializing in fast web applications.

While BitMEX was once the largest crypto derivatives platform, Binance now dominates the field. BitMEX recently laid off about a quarter of its workforce of 300 people, not long after its planned acquisition of a German bank fell through.

The company on Tuesday launched a spot exchange, which will start off with seven trading pairs including Bitcoin, Ether and Polygon versus the Tether stablecoin.

Damian Williams, the top federal prosecutor in Manhattan, said in a statement Friday that Hayes’s failures “allowed BitMEX to operate as a platform in the shadows of the financial markets.”

He vowed to “vigorously enforce United States law intended to prevent money laundering through financial institutions, including cryptocurrency platforms.”

The case is US v. Hayes, 20-cr-500, US District Court, Southern District of New York (Manhattan).

Updated: 5-21-2022

Arthur Hayes To Serve 2-Year Probation Owning Up To BitMEX’s AML Mishap

Despite the imminent possibility of serving jail time, proactively owning up to the allegations resulted in Hayes being sentenced to six months of house arrest and two years of probation.

Bringing closure to the long-awaited judgment related to the money laundering activities over the BitMEX crypto exchange, one of the four federal district courthouses in New York reportedly sentenced two-year probation and six months of home detention to founder and ex-CEO Arthur Hayes.

Arthur Hayes, along with the other BitMEX co-founders Benjamin Delo and Samuel Reed, and the company’s first non-employee Gregory Dwyer, pleaded guilty to the Bank Secrecy Act (BSA) violations on Feb 24, admitting to “willfully failing to establish, implement, and maintain an anti-money laundering (“AML”) program at BitMEX.”

CFTC Charges BitMex With Illegally Operating Derivatives Exchange

Pleading guilty to supporting money laundering is a punishable offense, often carrying a maximum penalty of five years prison time. However, both Hayes and Delo were charged with violating the BSA by failing to implement a compliant anti-money laundering program ahead of the March trial date and had agreed to pay $10 million in criminal fines each.

On April 7, Cointelegraph reported that Hayes voluntarily surrendered to United States authorities in Hawaii six months after federal prosecutors first levied charges, to which his lawyers stated:

“Mr. Hayes voluntarily appeared in court and looks forward to fighting these unwarranted charges.”

According to the indictment, public court filings and statements made in court, Hayes was released after posting a $10-million bail bond pending future proceedings in New York.

However, prosecutors from the office’s Money Laundering and Transnational Criminal Enterprises Unit found the entrepreneurs to be guilty of not implementing Anti-Money Laundering (AML) safeguards, including not fulfilling Know Your Customer (KYC) obligations.

Despite the imminent possibility of serving jail time, owning up to the allegations resulted in Hayes being sentenced to a home confinement sentence that requires him to spend the first six months of his sentence from home. In addition, he also agreed to pay a fine of $10 million.

Busting the myth related to the ease of laundering money using crypto, a new analysis highlights the potential of blockchain technology and crypto to track down financial crimes.

While numerous projects within the crypto ecosystem were victims of targeted attacks, bad actors continue to struggle when it comes to cashing out the stolen funds.

CFTC Charges BitMex With Illegally Operating Derivatives Exchange

Speaking to Cointelegraph, Dmytro Volkov, chief technology officer at crypto exchange CEX.IO, said that the notion of crypto being primarily used by criminals is outdated, adding:

“In the case of Bitcoin, whose blockchain ledger is publicly available, a serious exchange with a competent analytics team can easily monitor and thwart hackers and launderers before the damage is done.”

 

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