The founders of derivatives cryptocurrency exchange BitMEX are facing criminal charges for allegedly violating anti-money laundering laws and basic compliance procedures.
The Commodity Futures Trading Commission (CFTC) has charged co-founders Arthur Hayes (chief executive), Samuel Reed (chief technology officer), Gregory Dwyer and Ben Delo, who operate Hong Kong-based BitMEX, touted as the world’s largest cryptocurrency derivatives platform.
The CFTC alleges that from November 2014 and until now, BitMEX has illegally offered leveraged retail commodity transactions, futures, options, and swaps on cryptocurrencies including bitcoin, ether and litecoin.
Among its alleged violations, BitMEX failed to implement know-your-customer procedures, a customer information program and anti-money laundering procedures.
BitMEX allows clients to leverage trades at a ratio of 100 to 1 via its several entities: Holding Limited, ABS Global Trading Limited, Shine Effort Inc Limited, and HDR Global Services (Bermuda) Limited.
In response to the charges, BitMEX responded: “We strongly disagree with the US 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 US laws, as those laws were understood at the time and based on available guidance.”
In the meantime, BitMEX said it is “operating entirely as normal and all funds are safe.”
In January 2020, BitMEX’s daily trading volume exceeded US$3 billion. The CFTC estimates BitMEX earned fees of over US$1 billion since it began operating.
The CFTC’s division of enforcement director James McDonald said: “Effective anti-money laundering procedures are among the fundamental requirements of intermediaries in the derivatives markets, whether in traditional products or in the growing digital asset market. This action shows the CFTC will continue to work vigilantly to protect the integrity of these markets.”
The CFTC is seeking among other things, a trading ban and permanent injunction from BitMEX violating the Commodity Exchange Act (CEA), and for it to pay civil monetary penalties. It also wants BitMEX to be permanently registered and to restitute customers.