The U.S. District Court for the Southern District of New York has ordered a total of $30 million civil monetary penalties from the three co-founders of BitMEX crypto derivatives exchange, including former CEO Arthur Hayes.
Hayes, Benjamin Delo, and Samuel Reed were each fined $10 million in consent payments according to a statement from the Commodity Futures Trading Commission (CFTC) at the conclusion of a court battle on May 5 in which the CFTC said they violated aspects of the Commodity Exchange Act and CFTC regulations from November 2014 to October 2020.
CFTC: Bitmex Co-Founders Ordered to Pay $10 Million Each
— db (@tier10k) May 5, 2022
The CFTC filed suit against the exchange and its three co-founders on Oct. 1, 2020. In a rundown of the conclusion of the case today, the Commission stated that the defendants were accused of “operating the BitMEX platform while conducting significant aspects of BitMEX’s business from the U.S., and unlawfully accepting orders and funds from U.S. customers to trade cryptocurrencies,” including Bitcoin (BTC), Ether (ETH), and Litecoin (LTC) derivatives.
The CFTC said unlawful acts included the operation of a facility to trade or process swaps without having CFTC approval to operate as a Designated Contract Market or a Swap Execution Facility. It said they had also operated as a Futures Commission Merchant without CFTC registration, failed to implement a Customer Information Program and Know-Your-Customer procedures or an adequate Anti-Money Laundering program.
CFTC Commissioner Carline D. Pham said in a separate May 5 statement that her Commission is committed to pursuing “wrongdoers with an unfair advantage” that operate in violation of the law.
“By enforcing individual accountability for registration, market conduct, and anti-money laundering rules—fundamental aspects of the U.S. regulatory framework—the CFTC is ensuring that BitMEX’s management is held responsible after last year’s $100 million dollar settlement with corporate defendants.”
Additional legal battles
According to reporting from Cointelegraph in February, Hayes and Delo pleaded guilty to violating the Bank Secrecy Act in a separate case filed by the DOJ. In the plea, they admitted to “willfully failing to establish, implement and maintain an Anti-Money Laundering (AML) program.”
Bloomberg reported on May 5 that Hayes’s mother was particularly concerned with how the federal judge presiding over the DOJ’s case would sentence her son. The defense offered a letter from her asking for a lenient sentence, and his lawyers requested a sentence of probation without house arrest or community confinement.
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Last August, Cointelegraph reported that BitMEX agreed to pay $100 million in consent payments to both the CFTC and the Financial Crimes Enforcement Center (FinCEN) in order to resolve a separate case where the CFTC and FinCEN said exchange operators HDR Global Trading Limited, 100x Holding Limited, ABS Global Trading Limited, Shine Effort Inc Limited and HDR Global Services Limited illegally operated the exchange.
On March 29, 2021, a U.S. court issued an order requiring the founding partners of crypto derivatives trading platform BitMEX to pay a $30 million civil penalty.
The order was in response to charges filed by the U.S. Commodity Futures Trading Commission (CFTC) for unlawfully operating BitMEX and offering illegal derivatives trading services. The CFTC alleged that the platform allowed traders from U.S. jurisdictions to place illegal transactions.
Arthur Hayes, Benjamin Delo, Gregory Dwyer, and Samuel Reed, who founded the trading platform, were all named in the charges for failing to uphold the CFTC’s anti-money laundering regulations.
As a result, the court has now ordered Hayes, Delo, and Reed to pay a civil penalty of $30 million. Dwyer, who invoked his Fifth Amendment rights, was not ordered to pay the penalty.
This order follows a $ 100 million settlement proposed by the four founders in August 2020. At the time, the proposed settlement focused on general damages, disgorgement of gains, and a suspension of activities within the United States. However, this settlement was rejected by the CFTC.
While the court ruling is the latest development in the BitMEX saga, it does not resolve all outstanding issues. The CFTC’s enforcement case against the trading platform remains ongoing, and further proceedings are expected to take place in the near future.
This case serves as a reminder of the importance of regulation and compliance in the digital currency sector. It underscores the necessity for all actors to abide by the law and adhere to the regulations in place to protect consumers from risk. Failure to do so can result in serious financial and legal penalties.