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Giant cryptocurrency exchange BitMEX hit with criminal and civil money laundering charges

Giant cryptocurrency exchange BitMEX hit with criminal and civil money laundering charges

The federal government filed civil and criminal charges on Thursday against one of the world’s largest cryptocurrency exchanges, BitMEX, and four of its top executives.

The charges, which can disrupt a key component of the global cryptocurrency market, led most cryptocurrencies into immediate liquidation. Within two hours of the charges being made public, the price of Bitcoin fell more than 3%.

The civil charges against BitMEX and affiliated entities, filed by the Commodity Futures Trading Commission, allege that the company operated an unregistered trading platform and failed to implement anti-money laundering controls, such as verifying the identity of individuals. who trade in the service.

New York federal prosecutors filed parallel criminal charges against BitMEX CEO Arthur Hayes, co-founder Benjamin Delo, CTO Samuel Reed, and Gregory Dwyer, director of business development. Similarly, the government alleged that the executives had failed to establish anti-money laundering practices, such as collecting user identity information and reporting suspicious transactions, required by the Banking Secrecy Law.

Prosecutors said Reed was arrested in Massachusetts on Thursday, while Hayes, Dwyer and Delo remain at large.

“Registration requirements are a cornerstone of the regulatory framework that protects Americans and the US financial markets,” James McDonald, director of the compliance division of the Commodity Futures Trading Commission, or CFTC, said in a statement.

Headquartered in the Seychelles archipelago in the Indian Ocean and operating primarily out of Hong Kong, BitMEX is among the world’s largest cryptocurrency trading platforms by volume, processing close to $ 2 billion in trades per day. It is best known for offering cryptocurrency derivatives, including futures, for digital tokens such as Bitcoin and Ether.

In its complaint, the CFTC said that since its founding in 2013, BitMEX has raised more than $ 1 billion in trading fees.

The CFTC alleges that much of BitMEX’s trading volume and profits come from American clients, despite the fact that, like many other international cryptocurrency exchanges, Americans cannot legally use it. Visitors to the exchange’s website from US IP addresses receive a warning to this effect and cannot register.

But prosecutors in the criminal case allege that the four defendants “knew of clients residing in the United States and who continued to access the BitMEX trading platform” despite that nominal ban. Users in the US can often access cryptocurrency exchanges abroad using VPN software, which masks the user’s location. Many overseas exchanges take no additional steps to stop this behavior.

Additionally, as described in the CFTC’s 40-page civil lawsuit, BitMEX actively courted US users despite being legally prohibited from serving them. That continued even after the platform reached a minor settlement with US regulators in 2016 over violations of commodity trading. For example, according to the CFTC complaint, BitMEX hired marketing and customer service personnel working in New York and New Jersey.

“We totally disagree with the heavy-handed decision of the United States government to press these charges,” BitMEX’s parent company HDR Global Trading Limited said in a statement, “and we intend to vigorously defend the allegations.

 In a separate statement, attorneys for Greg Dwyer said they were “shocked and dismayed” by the charges, and that Dwyer had “fully complied with the CFTC investigation and was not even invited to speak to prosecutors at the Attorney General’s Office. General Manhattan has always worked in good faith to comply with all applicable regulations and requirements, and helped BitMEX establish an international business that operated with the utmost integrity.

Other global cryptocurrency exchanges have previously been subject to money laundering violations. That includes at least one Russia-based BTC-e, which was shut down by US authorities after criminal and civil actions in 2017.

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