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BitMEX founders hit with yet another RICO suit; criminal trial set for March 2022

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BitMEX and its trio of founders Arthur Hayes, Benjamin Delo and Samuel Reed are facing yet another RICO lawsuit in California, as shown by court documents filed Wednesday.

The lawsuit is filed by Anatoly Sorokin, who is being represented by Pavel Pogodin, the same attorney who filed the prior civil RICO suits against BitMEX and its staff. As such, the allegations are for the most part the same as in those cases.

It accuses the defendants of deliberately designing BitMEX ‘from the ground up with the purpose to engage in, facilitate, aid, abet, counsel, induce and/or procure a myriad of illegal activities’, including the intentional evasion of mandatory financial controls including failing to implement any KYC or AML checks. Its failure to do this facilitated—often intentionally—market manipulators and money launderers on the exchange. It alleges that BitMEX would “intentionally [take] the BitMEX platform offline during market manipulation events to exacerbate retail trader losses, weaponizing deliberate server freezes” making the platform “an exquisite ‘designer’ tool for unsavory actors to launder funds and manipulate cryptocurrency markets.”

It also details a broader scheme to conceal the true nature of the funds earned from the market manipulation and money laundering being orchestrated by BitMEX by using fraudulent shell companies in the U.S. to facilitate a real investment scheme which would disguise the true source of the money.

However, the lawsuit also introduces new counts not present in the other suits, alleging additional violations of the Commodity Exchange Act and California Civil Code, chiefly fraudulent solicitation, fraud and willful deception. In effect, the plaintiff is accusing the defendants of using fraud and deception to entice the plaintiff to trade on their platform. This was done through “a laundry list of material misrepresentations, half-truths and omissions” including warranties contained in the BitMEX service agreement that BitMEX’s did not trade against its own customers.

The lawsuit has also been expanded to include reference to discoveries made in Pogodin’s other lawsuits against BitMEX. It remarks that attempts by BitMEX to get the cases thrown out on the basis that U.S. customers were prohibited from using the platform ‘spectacularly imploded’ after the plantiff’s counsel discovered that BitMEX’s top three leaderboard traders were all U.S. residents who alone generated over $100,000,000 in trading profits for BitMEX. This is particularly damning considering one of the defendants, Samuel Reed, is on record in his deposition with the CFTC prior to his indictment that he did not know of any reports maintained by BitMEX which identified U.S. customers on the platform.

As with the other plaintiffs, Sorokin is principally asking for damages, though in this case he makes specific requests for the payment of his net trading losses and wrongfully collected commissions.

This suit is only the latest to be filed by former users of BitMEX, and it won’t be the last. In addition to the outstanding civil suits, the defendant founders—Arthur Hayes, Benjamin Delo and Samuel Reed—are now set to face trial in March of 2022 in the criminal federal case against them, according to a court filing on Tuesday.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—
BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple and
Ethereum—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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