- The U.S. CFTC filed money-laundering and related charges against exchange BitMEX.
- The regulatory enforcement agency said that BitMEX was illegally operating in the U.S.
- Separately, the U.S. Attorney in New York filed related criminal charges against the owners, Arthur Hayes, Ben Delo, and Samuel Reed.
The Commodity Futures Trading Commission filed money-laundering and other civil charges against BitMEX for illegally operating in the U.S. today.
In a separate indictment unsealed today, the U.S. Attorney for the District of New York also filed criminal actions against the exchange’s owners, Arthur Hayes, Ben Delo, and Samuel Reed, for violating the Bank Secrecy Act and conspiracy to violate the Bank Secrecy Act.
The feds arrested Gregory Dwyer, whose Twitter bio describes him as the head of business development at BitMEX. He was charged with one count of violating the Bank Secrecy Act, and one count of conspiring to violate the Bank Secrecy Act. The charges carry a maximum penalty of five years in prison.
It could not be determined whether arrest warrants had been issued for others in the case.
In a statement, BitMEX said it intended to fight its battles in court:
“We strongly disagree with the U.S. government’s heavy-handed decision to bring these charges, and intend to defend the allegations vigorously. 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.”
The civil action
BitMEX is registered in Seychelles, an island nation off the coast of East Africa, and it has branches registered in in Hong Kong and Bermuda.
The civil court action, filed in the US District Court for the Southern District of New York charged the owners with operating an unregistered trading platform, and failing to impose anti-money laundering procedures, among other violations. Hayes, Delo, and Reed, were named as the owners and described as operating “BitMEX’s platform through a maze of corporate entities.”
“Digital assets hold great promise for our derivatives markets and for our economy,” said CFTC Chairman Heath P. Tarbert. “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."
The civil case was brought by the Division of Enforcement’s Digital Asset and Bank Secrecy Act Task Forces.
Also named on the suit were HDR Global Trading Limited, 100x Holding Limited, ABS Global Trading Limited, Shine Effort Inc Limited, and HDR Global Services (Bermuda) Limited (BitMEX).
Max Rayden, a spokesman on behalf of HDR Global, echoed the BitMEX statement and said: “We strongly disagree with the U.S. government’s heavy-handed decision to bring these charges, and intend to defend the allegations vigorously. 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."
Reactions to the enforcement actions
Crypt prices plummeted on the news, with Bitcoin losing $500, but recovered somewhat hours later. Reaction among the cryptorati, especially on Twitter, tended to be pro-BitMEX, with many deriding the feds for the crackdown.
“Now we get to see if BitMEX's multisig setup is nation state resistant,” said Jameson Lopp, Bitcoin maximalist and co-founder and CTO of Casa.
Others were concerned that as much as $2 billion in BTC was held on the exchange.
Legal analysts believed that the case had been under investigation for years.
The scope of the case
The CFTC claimed that BitMEX “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."
BitMEX describes itself as the biggest derivatives-trading platform in the world and handles billions of dollars worth of transactions daily. "Much of this 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 agency claimed. "Nevertheless, 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 complaint charges BitMEX with "operating a facility for the trading or processing of swaps without having CFTC approval as a designated contract market or swap execution facility." It says BitMEX acted as a futures commission merchant by soliciting orders for and accepting bitcoin to margin digital asset derivatives transactions, and by acting as a counterparty to leveraged retail commodity transactions. The complaint further charges BitMEX with violating CFTC rules by failing to implement know-your-customer procedures, a customer information program, or anti-money laundering procedures.
BitMEX sought to calm investor fears late Thursday and said that "the BitMEX platform is operating entirely as normal and all funds are safe. To allay any potential customer concerns, pending withdrawal requests were processed at 17:45 UTC, in line with our standard procedures. We will process another off-cycle withdrawal at 08:00 UTC, 02 Oct 2020, and then 13:00 UTC, as usual."