BitMEX Founders Charged With Failing to Prevent Laundering

BitMEX Founders Charged With Failing to Prevent LaunderingBitMEX Founders Charged With Failing to Prevent Laundering

View photos

(Bloomberg) — Founders of the BitMEX digital-asset exchange failed to maintain an adequate anti-money-laundering program at the crypto-derivatives pioneer, federal prosecutors said in an indictment unsealed Thursday that helped send Bitcoin down almost 2%.

The indictment, which was accompanied by a civil action by the U.S. Commodity Futures Trading Commission, is a black eye for the company that kicked off the cryptocurrency-derivatives market, inventing perpetual Bitcoin futures that were easy for retail investors to understand and get into.

The executives worked to avoid having to comply with U.S. laws by incorporating in the Seychelles, where one of them allegedly bragged that it cost “just a coconut” to bribe authorities, prosecutors said.

“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.

Bitcoin, the largest cryptocurrency, erased gains made earlier Thursday and fell as much as 1.8% to about $10,500 following the announcement of the charges. It has climbed about 50% since December, continuing the volatility of recent years that saw it surge 95% in 2019 after tumbling 73% in 2018.

BitMEX founders Arthur Hayes, Benjamin Delo and Samuel Reed were indicted on charges of 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 this morning, while the rest remain at large, prosecutors said.

Representatives of BitMEX didn’t immediately respond to requests for comment on the 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.

(Updates with latest Bitcoin performance, chart, details of charges and background on BitMEX.)

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="For more articles like this, please visit us at bloomberg.com” data-reactid=”39″>For more articles like this, please visit us at bloomberg.com

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Subscribe now to stay ahead with the most trusted business news source.” data-reactid=”40″>Subscribe now to stay ahead with the most trusted business news source.

©2020 Bloomberg L.P.

Leave a Reply

Your email address will not be published. Required fields are marked *