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.
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.