New York federal prosecutors are closely monitoring five entities and three individuals who own and operate the BitMEX trading platform. U.S. regulators have accused them of violating multiple CFTC (Commodity Futures Trading Commission) banking regulations and of allowing money laundering as normally required. The case was filed on Thursday, October 01, 2020 in the U.S. District Court for the Southern District of New York.
Arthur Hayes, Ben Delo and Samuel Reed, former banking experts at Deutsche Bank and Citibank, J.P. Morgan and IBM, founded HDR Global Trading Limited, a company that focuses on derivatives trading, particularly margin trading. The company is registered in Seychelles and has offices worldwide.
In 2014, HDR Global Trading Limited established Bitmex, a platform for trading in cryptourrencies and derivatives. Since its inception, the platform has become one of the leading online exchanges for trading Bitcoins and cryptocurrency with billions of dollars in trading volume every day.
With Bitmex, currencies are not exchanged directly, the service connects buyers and sellers of derivative contracts such as futures and swaps and then acts as a neutral judge between winners and losers based on pre-established trading conditions. Bitmex therefore earns money regardless of how the cryptos moves and is exchanged.
Registration with BitMEX is relatively simple and straightforward, with no trading limits once registration is complete; with the possibility for operators to trade with leverage of up to x100, meaning that they can make large bets with very small collateral.
All you need is an email address and to be over 18 years of age. However, the platform is not available for traders based in the United States.
According to a report by the South China Morning Post (SCMP), Bitmex has already closed its clients' commercial accounts in the United States and the Canadian province of Quebec in 2019 in the context of a global regulatory crackdown on unlicensed cryptographic exchanges.
According to the SCMP, the Autorité des marchés financiers (AMF), Quebec's financial supervisory body, had issued a notice to the exchange in early 2018 ordering it to close all accounts related to Quebecers, as it was not legally operating in the jurisdiction.
At the time, the AMF's Director of Media Relations stated:
'BitMEX is not registered with the AMF and is therefore not authorized to operate in the province of Quebec. We informed this company that its activities were illegal'.
The report also indicates that the trading platform is not accessible in the United States and that traders in that country use virtual private networks to access their accounts.
As an answer, Joe Coufal, a representative of Bitmex said:
'BitMEX has banned all U.S. operators since 2015, and has proactively closed accounts since the U.S. regulatory authorities, in particular the Commodities and Futures Trading Commission (CFTC), obtained this guidance' (....).
BitMEX has always retained the right to close any account and liquidate any open position if trading participants give false indications as to where they reside',
A spokesperson for Bitmex said in a statement:
'We strongly disapprove of the U.S. government's decision to bring these charges and intend to vigorously defend the allegations. Since our inception as a start-up, we have always sought to comply with applicable U.S. laws as understood at the time and based on available guidance'.
This is one of Bitmex's responses to the allegations of illegally operating a trading platform for cryptocurrency derivatives and committing violations of money laundering legislation.
The U.S. Attorney for the District of New York has indicted Hayes, Delo and Reed, as well as Gregory Dwyer, for conspiring to violate the Bank Secrecy Act.
The federal prosecutors claimed that the digital asset swap served U.S. customers while violating U.S. banking laws. According to the indictment, Mr. Hayes was a 'tireless marketer', repeatedly promoting BitMEX on U.S. television shows, and that BitMEX facilitated multi-billion dollar transactions in crypto derivatives, earning commissions of more than $1 billion since it began operations in 2014. Yet, as alleged in the complaint, BitMEX has failed to implement the most basic compliance procedures required of financial institutions that may impact the U.S. markets.
FBI Deputy Director William F. Sweeney Jr. stated:
'They will soon learn that the price for their alleged crimes will not be paid with tropical fruits, but rather may result in federal fines, restitution and jail time'.
In this case, with the help of the different staffs
- From the Market Surveillance Division,
- From the Clearing and Risk Division and
- From the Swap Dealer and Intermediary Supervision Division;
The staff members of the Division of Enforcement responsible for this case are:
Joy McCormack, Carlin Metzger, Jeffrey Gomberg, Joseph Platt, Ray Lavko, Brigitte Weyls, Elizabeth N. Pendleton, Scott Williamson, and Robert T. Howell.
The TCRC has issued a notice to the public to verify a company's registration with the Commission before committing funds. James McDonald, Director of the Enforcement Division stated :
'As the CFTC has made clear, registration requirements are a cornerstone of the regulatory framework that protects Americans and the U.S. capital markets.' 'Effective anti-money laundering procedures are a fundamental requirement for intermediaries in the derivatives markets, both in traditional products and in the growing market for digital assets. This action demonstrates that the CFTC will continue to work vigilantly to protect the integrity of these markets.
President Heath P. Tarbert said:
'Digital assets hold great promise for our derivatives markets and our economy,' he added:
'For the United States to be a world leader in this area, it is imperative that we eradicate illegal activities such as the one alleged in this case. New and innovative financial products can only thrive if there is market integrity. We cannot allow bad players who break the law to take advantage of exchanges that are doing the right thing by following our rules.
According to data from Arcane Research, open interest in the bitmex derivatives market reached a new low of 45,122 BTC on October 1. This figure represents a 16% decline since the CFTC announced charges against Bitmex and its executives.
Open Interest is the total number of outstanding derivative contracts, such as options or futures that have not been settled. An increase in open interest represents new or additional money coming into the market, while a decrease in open interest indicates that money is leaving the market.
Arcane Research has posted on Twitter:
'The former annual low was painted on April 30, when open interest reached a low of 61,975 BTC'. The post added that in the wake of the CFTC act, traders are 'permanently closing their positions on Bitmex'.
Although, according to earlier data from Skew, the biggest drop was 20% on October 3, 2020.
In addition, the stock exchange experienced massive withdrawals of BTC almost - 23,200 BTC, followed by another wave of withdrawals. In the end, traders quickly withdrew 32,200 BTC in three large portions, representing 19% of the funds stored on BitMEX.
In addition, Glassnode tweeted that the IO of Bitcoin futures contracts reached its lowest level in 4 months at $460,928,605.54.
For its part, Coinmetrics showed that during the same period, a total of 37,000 BTC ($387 million) were withdrawn from Bitmex.
Currently, no verdict has been reached on these charges, but it is questionable whether Bitmex is prepared to face the criminal charges.
Written by Laetitia Harson, Project Manager
Cartam: Free marketplace for cryptocurrency users
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.