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Founders of BitMEX charged with skirting U.S. laws preventing money laundering  

02/10/2020

Founders of the pioneering crypto-derivatives exchange BitMEX were charged with skirting U.S. laws preventing money laundering and hit with civil sanctions as well, abruptly sending the price of Bitcoin down.

Arthur Hayes, Benjamin Delo and Samuel Reed were indicted in New York, where federal prosecutors claim the digital-asset exchange served American customers while flouting U.S. banking laws.

Hayes said the exchange was incorporated in the Seychelles because they could bribe authorities there for the cost of “just a coconut,” according to the indictment, unsealed Thursday.

“They will soon learn the price of their alleged crimes will not be paid with tropical fruit, but rather could result in fines, restitution, and federal prison time,” FBI Assistant Director William F. Sweeney Jr. said in a statement. The Commodity Futures Trading Commission brought a parallel civil action.

“We strongly disagree with the U.S. government’s heavy-handed decision to bring these charges, and intend to defend the allegations vigorously,” a spokesperson for the company said in a statement. “From our early days as a start-up, we have always sought to comply with applicable U.S. laws, as those laws were understood at the time and based on available guidance.”

The three founders were charged with violating the Bank Secrecy Act and conspiring to violate the act, both of which carry a maximum prison term of five years.

Facing the same charges is Gregory Dwyer, the exchange’s first employee and later its head of business development. Reed was arrested in Massachusetts on Thursday morning, while the rest remain at large, prosecutors said.

Sean Hecker and Jenna Dabbs, attorneys for Dwyer, said in a statement they were “surprised and dismayed” by the indictment.

“Our client, Greg Dwyer, who complied fully with the CFTC investigation and was never so much as invited to speak with prosecutors in the United States Attorney’s Office in Manhattan, always worked in good faith to comply with all applicable regulations and requirements, and helped BitMEX establish an international business that operated with the highest integrity,” they said. “We will strongly contest these charges.”

For months BitMEX was the world’s largest crypto-derivatives exchange and is currently No. 2, behind Binance. To serve U.S. customers, it was required to register with the CFTC and establish adequate programs to ensure that its platform wasn’t used for illegal purposes such as money laundering, according to the government.

Prosecutors said the executives instead chose to ignore those requirements, knowing that U.S. residents were still using the exchange and that its controls were ineffective.

Bloomberg reported in July of 2019 that the CFTC was investigating BitMEX with a focus on whether it had broken those rules.

Extracted from

— With assistance by Edward Robinson (Updates with excerpts of the indictment and background on Hayes.)

https://www.bloomberg.com/news/articles/2020-10-01/bitmex-founders-and-executives-are-indicted-in-new-york?sref=ldCf194q