Crypto trading behemoth BitMEX has been hit with multiple significant actions in the United States, for various alleged breaches of the Commodity Exchange Act and the Bank Secrecy Act among others. First and foremost, the Commodity Futures Trading Commission (CFTC) has charged BitMEX with operating an unregistered trading platform, as well as with various violations of anti-money laundering regulation. In addition to this civil action, the US attorney for the District of New York indicted four individuals, Arthur Hayes, CEO of BitMEX, as well as Ben Delo, Samuel Reed and Gregory Dwyer for violating and conspiring to violate the Bank Secrecy Act.
The charges are against a variety of different entities and individuals which the CFTC claims make up BitMEX as a whole, and include HDR Global Trading Limited, 100x Holding Limited, ABS Global Trading Limited, Shine Effort Inc Limited, and HDR Global Services (Bermuda) Limited (referred to collectively as BiTMEX) in addition to Hayes, Delo, Reed and Dwyer.
The charges stem from the root problem that despite "purportedly withdrawing from the U.S. market in or about September 2015", BiTMEX has actively sought out and provided its crypto futures contracts and derivative products to US customers. Further, the indictment claims that since September 2015, BiTMEX has failed to maintain adequate an adequate AML program (which, as Westpac can confirm, is a serious allegation).
The allegations go so far as to suggest that BiTMEX's executives knowingly took steps designed to avoid US laws, including a claim that:
the defendants caused BitMEX and its parent corporations formally to incorporate in the Seychelles, a jurisdiction they believed had less stringent regulation and from which they could still serve U.S. customers without performing AML and KYC. Indeed, in or about July 2019, HAYES bragged that the Seychelles was a more friendly jurisdiction for BitMEX because it cost less to bribe Seychellois authorities – just “a coconut” – than it would cost to bribe regulators in the United States and elsewhere
Stating the CFTC's position in no uncertain terms, CFTC Division of Enforcement Director James McDonald said:
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.
The CFTC is swinging for the fences, seeking 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. If convicted, Hayes, Delo, Reed and Dwyer could face a maximum of five years in prison and a US$250,000 fine.
A statement from the Department of Justice reveals that Reed, BiTMEX's CTO, was arrested on Thursday morning in Massachusetts. Hayes, Delo and Dwyer have yet to be arrested. This will be one to watch.