A New York federal court has ordered the co-founders of BitMEX digital asset derivatives exchange to pay $30 million in a civil monetary penalty in connection with charges of violating the U.S. Bank Secrecy Act. Elsewhere, one of the founders has asked the court for probation rather than a jail term so he can be able to travel and be with his family, arguing that what he did, though a crime, was what everyone else in the industry was doing.
The Commodity Futures Trading Commission (CFTC) announced the Southern District of New York had entered consent orders against Arthur Hayes, Benjamin Delo, and Samuel Reed, the three founders of embattled BitMEX exchange. They are each to pay $10 million in a civil monetary penalty and were also enjoined from further violations of the Commodity Exchange Act (CEA) and CFTC regulations.
The order against the three stems from an October 2020 CFTC complaint in which the regulator accused them of unlawfully accepting orders and funds from US customers to trade digital asset derivatives without the required licenses.
As CoinGeek reported, the CFTC had resolved its charges against BitMEX through a consent order in August last year in which it required them to pay $100 million in civil penalties as well as imposing injunctions against future violations of the CEA.
“Individuals who control cryptocurrency derivatives trading platforms conducting business in the U.S. must ensure that their platform complies with applicable federal commodities laws, including CFTC registration and regulatory requirements such as Know-Your-Customer and Anti-Money Laundering regulations,” Acting Director of Enforcement Gretchen Lowe remarked.
Rostin Behnam, the CFTC chair, added that the commission would continue to use its existing enforcement authority to protect consumers and rid the emerging market of fraud and manipulation.
“This is another example of the Commission taking decisive action where appropriate to ensure that digital asset derivatives trading platforms comply with the Commodity Exchange Act and Commission regulations,” he added.
As the CFTC observed, the three co-founders failed to enforce effective controls to prevent and detect unlawful conduct at BitMEX.
Their violations include “the operation of a facility to trade or process swaps without having CFTC approval to operate as a Designated Contract Market (DCM) or a Swap Execution Facility (SEF),” the commission said.
It added, “BitMEX operated as a Futures Commission Merchant (FCM) without CFTC registration, failed to implement a Customer Information Program (CIP) and Know-Your-Customer (KYC) procedures, and failed to implement an adequate Anti-Money Laundering (AML) program.”
Arthur Hayes’ argument for probation: Everyone was doing it
Elsewhere, ex-CEO Arthur Hayes is seeking probation for his crime. In a filing with a New York court, Hayes asked Judge John Koeltl not to sentence him to a prison term come May 18.
“…we request that the Court sentence Mr. Hayes to a term of probation, with no home detention or community confinement, and that he be permitted to reside abroad and travel freely during the term of his probation,” the filing by his legal team says.
As CoinGeek reported, Hayes is looking at five years behind bars after pleading guilty to violating the BSA while at the helm of BitMEX. Hayes says that he has accepted responsibility for his criminal conduct and deeply regrets his actions.
He further said that through the trial and upcoming sentencing, the government has already “achieved a notable success by establishing the principle that cryptocurrency derivatives trading platforms must comply with the Bank Secrecy Act if they provide services to US customers.”
In the filing, Hayes admitted to all the accusations he faced and even went onto reveal more details about how his exchange allowed US customers to access its platform despite claiming to ban them, including through VPNs and by establishing offshore companies. He, however, disputed the Justice Department’s statement that BitMEX claimed it had banned U.S. users was a meaningless sham.
In support of his request for probation, Hayes claims that while violating BSA is a crime, everyone else in the industry was doing it, which somehow makes what he did less egregious. Moreover, his crimes didn’t facilitate bigger crimes like other digital asset-related entities such as Silk Road, he believes. However, by reportedly allowing users to access BitMEX with little KYC, Hayes could have been facilitating any number of crimes from money laundering to payments for illicit substances.
Hayes is also a good man, his lawyers argue.
“Instead, at every stage of his journey Mr. Hayes has looked outward, seeking to help those around him and to make a positive impact on the community,” the filing observes, and according to the lawyers, Judge Koeltl should also take this into account.
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.
New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.