The crypto world awoke today to find BitMEX, the popular trading platform, facing charges by the CFTC. In a Press Release from the Commodities and Futures Trading Commission, the U.S. District Court for the Southern District of New York is charging five corporate entities and three individuals who own and run the site.
Of those under investigation are Benjamin Delo, Samuel Reed, and Arthur Hayes, who started the exchange in 2014. Arthur is perhaps the most outspoken of the owners, fond of highlighting specific cryptos on his Twitter feed.
The case has been under development for some time. The CFTC alleges that since 2014 BitMEX “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.” The complaint alleges that the exchange owners conspired to violated the Bank Secrecy Act by failing to implement the most basic compliance procedures including Know Your Customer (KYC) practices and Anti-Money Laundering measures. This crime carries a maximum potential sentence of 5 years in federal prison.
No details have been released on arrests or other legal actions to be taken against the exchange. Documents from the US. Attorney for the District of New York were unsealed implicating Hayes, and other owners of violating the Bank Secrecy Act. BitMEX is headquartered in the Republic of Seychelles with offices operating outside of the country.
“They will soon learn the price of their alleged crimes will not be paid with tropical fruit, but rather could result in fines, restitution, and federal prison time,” FBI Assistant Director William F. Sweeney Jr. said in a statement.
While it primarily operates out of Hong Kong, the official indictment states BitMEX had offices on US soil, putting them at least in part under US jurisdiction. It is unknown if the US will seek to seize or freeze a portion of BitMEX’s holdings, but either of those decisions could jeopardize the roughly $2 billion in Bitcoin (~1% of global supply) held on the site.
Reports have surfaced that the founders boasted about the ability to bribe Seychelles officials “with just a coconut,” compared to the higher cost of bribery in other countries. Co-founder Samuel Reed was arrested in Massachusettes this morning, with the other two co-founders unaccounted for.
There has been no comment from any BitMEX representative. The company is no stranger to scrutiny from the authorities. In May of 2020 it had similar accusations of racketeering and offering high-risk services to users in the US. In April of 2020 it began to require KYC from its users.
This crackdown arrives on the heels of other crypto legislation from California. AB1864 provides the state of California with more power to regulate exchanges and protect consumers from scams.