Barely three weeks since the former CEO and CFO of Bitcoin Mercantile Exchange (BitMEX) pleaded guilty to willfully and knowingly flouting U.S. regulations, a third executive of the cryptocurrency exchange has entered a similar plea. Samuel Reed admitted to violating the Bank Secrecy Act and faces five years behind bars for his crime.
Arthur Hayes and Benjamin Delo, the former CEO and CFO of BitMEX, respectively pleaded guilty to similar charges in late February.
U.S. Attorney Damian Williams accused the two of “building a company designed to flout those obligations; they willfully failed to implement and maintain even basic anti-money laundering policies. They allowed BitMEX to operate as a platform in the shadows of the financial markets.”
Reed, who was a co-founder of the trading platform as well as its long-serving CTO, was just as involved in the crimes, the Department of Justice has revealed.
“As today’s guilty plea reflects, this Office will not permit cryptocurrency exchanges to operate as a shadow financial system that enables criminal actors to move their illicit proceeds without detection, and will vigorously investigate and prosecute the operators of such exchanges who deliberately flout U.S. law,” Attorney Williams stated, commenting on Reed’s plea.
Reed, along with Hayes, Delo, and Greg Dwyer—who has yet to plead guilty and faces a possible trial this year—knowingly operated a BTC trading platform that had a lax anti-money laundering (AML) program, including failing to conduct basic Know Your Customer (KYC) checks. As a result, the exchange “was in effect a money laundering platform.”
The DoJ said that in one instance in May 2018, Reed was notified that criminals were using BitMEX to launder the proceeds of a digital asset hack. Neither he nor the company filed a suspicious activity report (SAR) for it. BitMEX also didn’t file a single SAR report between 2014 and September 2020, according to federal authorities.
In addition, Reed and his co-conspirators made public statements in 2015 indicating that BitMEX would no longer serve U.S. customers. However, this was all a sham, and as the DoJ reveals, the exchange continued to operate stateside for years after.
“Reed not only understood that U.S. customers continued to trade on BitMEX, but derived substantial profits from BitMEX as a result of U.S.-based trading,” the DoJ revealed.
The 32-year-old Massachusetts resident faces five years behind bars for his crime and will pay a $10 million fine, just as Hayes and Delo did. However, with the other two, their sentences will be reduced to less than a year as part of their plea deals, according to the Wall Street Journal. It’s not yet clear if Reed received a similar deal.
Reed was first arrested on October 1, 2020, in Massachusetts, shortly after the Commodity Futures Trading Commission (CFTC) and the DoJ pressed charges against BitMEX and its top leaders. He was the first to be nabbed, being the only one living in the U.S. at the time. He was released a week later on a $5 million appearance bond, secured by $500,000 in cash.
At first, the other three executives had failed to surrender, but last year, they all gave themselves up as they realized law enforcement would catch up with them soon. In March, Delo surrendered to American authorities and was arraigned before a New York judge, pleading not guilty at the time. He was released on a $20 million bond.
Hayes, meanwhile, gave himself up a month later. He appeared before a Honolulu court and was released on a $10 million bond. Dwyer took the longest time, and it took the DoJ filing extradition requests to drive him out of his hideout in Bermuda.
As BitMEX executives go down, one after the other, one can’t help but wonder how long before authorities bring down the leaders of other exchanges that have flouted financial regulations seemingly for fun, from Binance to Bitfinex and more.
Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—a from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple,
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.
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