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BitMEX Owners Indicted for Accepting US Clients and AML Violations

US authorities are suing crypto exchange BitMEX with a long list of charges that are focused on whether the popular venue broke CFTC rules by allowing Americans to trade on the platform.

In that case, the CFTC alleges that BitMEX offered to US customers retail commodity transactions that were margined in cryptocurrencies and acted as a broker without having regulatory approval for a futures commission merchant, a designated contract market or swap execution facility. Moreover, the complaint charges BitMEX with acting as a counterparty to leveraged crypto trades, failing to implement KYC procedures and anti-money laundering procedures.

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Additionally, the charges seemingly involve a referral system which gave a portion of trading fees to clients who introduced new traders to BitMEX.

“BitMEX has failed to register with the CFTC, and has failed to implement key safeguards required by the CEA and CFTC’s regulations designed to protect the U.S. derivatives markets and market participants,” the agency said.

The CFTC estimates that BitMEX has facilitated ‘trillions of dollars’ in cryptocurrency derivatives transactions, received $11 billion in bitcoin deposits and earned more than $1 billion in fees since beginning the operations in 2014.

In a separate announcement, FBI prosecutors announced the indictment of BitMEX’s owners and top executives: Arthur Hayes, Benjamin Delo, Samuel Reed, and Gregory Dwyer. HDR Global Trading, BitMEX’s parent company, and the four men that stand accused of violating the Bank Secrecy Act, are failing to maintain an adequate anti-money laundering program and operating an unlicensed business.

The DoJ statement further states that the indicted officials allowed BitMEX to operate as a platform “in the shadows of the financial markets.”

“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’,” it further states.

The above statement is apparently related to BitMex CEO, Hayes who was captured on a video saying that it just costs ‘a coconut’ to bribe the Seychellois authorities.

California Is Where BitMEX Is Actually Located

The complaint further claims that BitMex, which handled nearly $1.7 billion in bitcoin trading volumes over the past 24 hours, has created a false ‘shell’ company called ABS Global. The legal documents state the move was part of a broader securities law dodge designed to tell regulators that BitMEX has no California operations or US investors.

However, California is where most of its technology and services are managed, and where almost all of the key personnel who perform those functions live, work and run BitMEX’s operations. In addition, over half of the BitMEX jobs listed on recruitment sites were looking for staff to work in the San Francisco office.

When the months-long CFTC probe hit the wires last year, Hayes said that his company blocks any user who breaks BitMEX rules that bar onboarding US residents and nationals. However, he said some registrants mask their location by using VPNs to assign their computer to a permitted country, tricking filters put in place.

Responding to these claims, the Justice Department said: “Indeed, each of the defendants knew of customers residing in the United States who continued to access BitMEX’s trading platform through at least in or about 2018, and that BitMEX policies nominally in place to prevent such trading were toothless or easily overridden to serve BitMEX’s bottom line goal of obtaining revenue through the U.S. market without regard to U.S. regulation.”

Interestingly enough, the move by the CFTC comes shortly after a heated debate surfaced between BitMex CEO, Arthur Hayes and self-proclaimed early investors in the crypto derivatives platform. Four plaintiffs are collectively suing BitMex for $540 million, claiming that they were the first seed investors of BitMex in 2015 and that their $55,000 investment was supposed to have been converted into equity at $10 million post-money valuation.


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