The U.S. Commodity Futures Trading Commission (CFTC) and federal prosecutors are charging crypto trading platform BitMEX with facilitating unregistered trading and other violations.
The CFTC announced Thursday that BitMEX, CEO Arthur Hayes, company owners Ben Delo and Samuel Reed, and corporate entities HDR Global Trading Limited, 100x Holding Limited, ABS Global Trading Limited, Shine Effort Inc Limited and HDR Global Services (Bermuda) Limited allegedly offered U.S. customers illicit crypto derivative trading services.
Similarly, Audrey Strauss, the acting U.S. Attorney for the Southern District of New York announced that Hayes, Delo, Reed and Gregory Dwyer (BitMEX's first employee) were being charged with violating the Bank Secrecy Act and conspiracy to violate the act. Reed has already been arrested; the others remain at large, an SDNY press release said.
"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,'" said Assistant FBI Director William Sweeney Jr. in a statement. "Thanks to the diligent work of our agents, analysts, and partners with the CFTC, 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."
In a statement sent to CoinDesk after the publication of this article, attorneys for Dwyer said they would contest the charges, adding that their client had complied with the CFTC investigation "and was never so much as invited to speak with prosecutors in the United States Attorney's Office in Manhattan."
Dwyer "always worked in good faith to comply with all applicable regulations and requirements," the statement said.
In a press release, the CFTC alleged that BitMEX received some $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."
The CFTC charged BitMEX with executing futures transactions on an unregistered board, offering illegal options, failing to register as a futures commission merchant, failing to register as a designated contract market, failing to implement proper know-your-customer rules and other counts, according to an attached legal filing.
"BitMEX touts itself as the world’s largest cryptocurrency derivatives platform in the world with billions of dollars’ worth of trading each day. Much of this trading volume and its profitability derives from its extensive access to United States markets and customers," the filing said. "Nevertheless, BitMEX has never been registered with the CFTC in any capacity and has not complied with the laws and regulations that are essential to the integrity and vitality of the U.S. markets."
The CFTC is looking for a permanent injunction prohibiting the defendants from entering into any transactions "involving 'commodity interests,'" soliciting funds for purchasing or selling commodity interests and applying for registration with the CFTC.
In addition, the agency wants the defendants to disgorge profits; provide full restitution to its customers; pay civil penalties; and rescind “all contracts and agreements” with any customers if those agreements violate the law.
"As a derivatives market regulator that supports innovation and ingenuity, it is imperative that we actively police trading platform activity and remove the bad apples so that legitimate, law-abiding marketplaces can flourish," said CFTC Commissioner Brian Quintenz in a statement. "We will not stand for any participant brazenly flouting our rules. I look forward to the successful resolution of this matter and the beneficial impact it will have in this market by holding those who deliberately ignore the law accountable."
In a statement shared after this article was published, an external HDR Global spokesperson pushed back against the charges.
"We strongly disagree with the U.S. government’s heavy-handed decision to bring these charges, and intend to defend the allegations vigorously," the statement said. "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."
BitMEX's official Telegram group later expanded on this, adding the platform was operating normally and recommending users reach out to its support page if they have further questions.
"In the meantime, 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," the statement said.
Read the full CFTC complaint below:
Read the full SDNY indictment below:
UPDATE (Oct. 1, 2020, 19:50 UTC): This article has been updated with a comment from BitMEX, a comment from Greg Dwyer's attorneys and details from the SDNY Attorney's office.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.