While the CySEC looks away from cryptocurrencies, the U.S. authorities and regulators proceed strictly and consistently in this regard. On 1 Oct 2020, the U.S. Commodity Futures Trading Commission (CFTC) and U.S. prosecutors announced law enforcement actions action charging the BitMEX co-founders and executives Arthur Hayes, Benjamin Delo, Samuel Reed, Gregory Dwyer, and their legal entities with operating an unregistered trading platform and violating multiple CFTC regulations as well as the U.S. Bank Secrecy Act.
The BitMEX Case in a nutshell
The CFTC complaint alleges that from at least November 2014 through the present, BitMEX has illegally offered leveraged retail commodity transactions, futures, options, and swaps on cryptocurrencies allowing traders to use the leverage of up to 100 to 1 when entering into transactions on its platform. BitMEX has facilitated cryptocurrency derivatives transactions with an aggregate notional value of trillions of dollars and has earned fees of more than over $1 billion since beginning operations in 2014.
According to the U.S. prosecutors’ indictment, BitMEX has willfully failed to implement the most basic KYC and AML procedures required of financial institutions that impact U.S. markets. In doing so the Hayes, Delo, Reed, and Dwyer violated the U.S. Bank Secrecy Act and have been indicted for that.
The founders resignation
On 8 Oct 2020, BitMEX announced on its corporate blog that its founders Arthur Hayes and Samuel Reed have stepped back from CEO and CTO roles with immediate effect. Fellow Founder Ben Delo will also terminate any executive position in BitMEX of one of the controlling entities. Greg Dwyer who has not been listed as a Defendant in the CFTC complaint but is charged by the U.S. Government will take a leave of absence from his role as Head of Business Development.
The CFTC complaint lists the following legal entities controlled by Hayes, Delo, and Reed as Defendants:
- HDR Global Trading Limited was incorporated in Seychelles in 2014 as a Seychelles International Business Company. Throughout the Relevant Period, HDR has owned and operated the BitMEX trading platform.
- 100x Holdings Limited is a holding company recently incorporated by Hayes, Delo, and Reed in Bermuda. In a July 15, 2020, blog post on the BitMEX website, 100x was introduced as the new holding structure for HDR Global Trading and all our other assets, including the BitMEX platform.
- ABS Global Trading Limited is a Delaware limited liability company incorporated in 2017 through which BitMEX conducts some operations in the United States. It is a subsidiary of HDR and 100x.
- Shine Effort Inc Limited is a Hong Kong corporation incorporated in 2014, and a subsidiary of HDR and 100x. Shine is the corporate entity through which BitMEX conducts proprietary trading on its own BitMEX platform, as well as proprietary trading with other market participants on exchanges and over the counter throughout the world.
- HDR Global Services (Bermuda) Limited is a Bermudian entity incorporated in 2018 that employs certain personnel performing duties for BitMEX.
According to CFTC, the legal entities listed about act as a single, integrated common enterprise and share common office space, employees, and operational resources. Via their legal entities and their executive positions Hayes, Delo, and Reed together controlled the operations of the BitMEX enterprise.
The U.S. Attorney for the District of New York indicted Hayes, Delo, and Reed, along with Gregory Dwyer, on federal charges of violating the Bank Secrecy Act and conspiracy to violate the Bank Secrecy Act. See United States v. Arthur Hayes, Benjamin Delo, Samuel Reed, and Gregory Dwyer, Case No. 20-CR-500 (SDNY).