Crypto exchange BitMEX pays $100 million to settle CFTC, FinCEN charges

According to a consent order published by the Commodity Futures Trading Commission, five associated firms operating under the BitMEX brand were charged with conspiring to skirt money-laundering controls.

“We are pleased to have reached a resolution with both the CFTC and FinCEN and to put these matters behind us. As responsible innovators, we are continuously strengthening our compliance framework and have already delivered industry leading user verification and anti-money laundering controls which will remain at the centre of everything we do. We are committed to becoming a regulated exchange and are looking to set the benchmarks in this new era for crypto. This is the beginning of a new BitMEX and we’ve never been more confident in our potential for future growth,” said a spokesperson for BitMEX.

“This case reinforces the expectation that the digital assets industry, as it continues to touch a broader pool of market participants, takes seriously its responsibilities in the regulated financial industry and its duties to develop and adhere to a culture of compliance,” said Acting Chairman Rostin Behnam.

US authorities had sued BitMEX with a long list of charges that are focused on whether the pioneering exchange acted as a broker without having regulatory approval. Moreover, the complaint charged the platform with acting as a counterparty to leveraged crypto trades, failing to implement KYC procedures and anti-money laundering procedures.

The CFTC charges involved a referral system which gave a portion of trading fees to clients who introduced new traders to BitMEX.

The CFTC estimates that BitMEX has facilitated ‘trillions of dollars’ in cryptocurrency derivatives transactions, received $11 billion in deposits and earned more than $1 billion in fees since beginning the operations in 2014.

Separately, FBI prosecutors indicted BitMEX’s owners and top executives: Arthur Hayes, Benjamin Delo, Samuel Reed, and Gregory Dwyer. The four men stood accused of violating the Bank Secrecy Act, evading money laundering regulations and operating an unlicensed business.

The statement further stated that the indicted officials allowed BitMEX to operate as a platform “in the shadows of the financial markets.”

The above statement was apparently related to BitMex’s former CEO, Arthur Hayes who was captured on a video saying that it just costs ‘a coconut’ to bribe the Seychellois authorities. Hayes surrendered to US authorities back in April to face trial.

The complaint further claims that BitMex, which handled nearly $2 billion in bitcoin trading volumes over the past 24 hours, has created a false ‘shell’ company called ABS Global. The legal documents state the move was part of a broader securities law dodge designed to tell regulators that BitMEX has no California operations or US investors.

However, California was where most of BitMEX’s technology and services are managed, and where almost all of its key personnel live and run operations. In addition, over half of the BitMEX jobs listed on recruitment sites were looking for staff to work in the San Francisco office.

When the months-long CFTC probe hit the wires last year, Hayes said that his company blocks any user who breaks BitMEX rules that bar onboarding US residents and nationals. However, he said some registrants mask their location by using VPNs to assign their computer to a permitted country, tricking filters put in place.

Interestingly enough, the move by the CFTC came shortly after a heated debate surfaced between BitMex former CEO Hayes and self-proclaimed early investors in the crypto derivatives platform. Four plaintiffs are collectively suing BitMex for $540 million, claiming that they were the first seed investors of BitMex in 2015 and that their $55,000 investment was supposed to have been converted into equity at $10 million post-money valuation.

Finally, the CFTC said that BitMEX has engaged in remedial measures, including developing an AML and user verification program. Moreover, the exchange has certified to the regulators that all active users have undergone user-verification, resulting in all Americans and unverified users being blocked from trading or making withdrawals.

“BitMEX also certified that as of June 30, 2021, BitMEX is no longer maintaining any operations or business functions in the U.S., except for limited personnel performing technology, systems maintenance, and security functions, all of whom have no direct or indirect involvement with marketing or solicitation of customers,” the order concludes.