BitMEX Hit by CFTC Enforcement Action for Illegal Crypto Derivatives Trading, AML Violations; Criminal Action Unsealed Simultaneously

BitMEX, a top cryptocurrency exchange that is big in the crypto derivatives sector, is the target of an enforcement action filed by the Commodity Futures Trading Commission (CFTC).

According to the CFTC, a civil enforcement action has been filed in the U.S. District Court for the Southern District of New York charging five entities and three individuals that own and operate the BitMEX with operating an unregistered trading platform and violating multiple CFTC regulations, including failing to implement required anti-money laundering (AML) procedures.

The CFTC says the case is brought in connection with the Division of Enforcement’s Digital Asset and Bank Secrecy Act Task Forces.

Named in the lawsuit include owners Arthur Hayes, Ben Delo, and Samuel Reed. The CFTC says these individuals operate BitMEX’s platform through a maze of corporate entities.

Also named as defendants in the complaint, are HDR Global Trading Limited, 100x Holding Limited, ABS Global Trading Limited, Shine Effort Inc Limited, and HDR Global Services (Bermuda) Limited (BitMEX).

The CFTC alleges that BitMEX’s platform has received more than $11 billion in Bitcoin deposits and made more than $1 billion in fees, while conducting significant aspects of its business from the U.S. and accepting orders and funds from U.S. customers.

Simultaneously, a criminal case was unsealed that targets BitMEX related to federal charges of violating the Bank Secrecy Act.

CFTC Chairman Heath P. Tarbert commented on the action:

“Digital assets hold great promise for our derivatives markets and for our economy. For the United States to be a global leader in this space, it is imperative that we root out illegal activity like that alleged in this case. New and innovative financial products can flourish only if there is market integrity. We can’t allow bad actors that break the law to gain an advantage over exchanges that are doing the right thing by complying with our rules.”

Division of Enforcement Director James McDonald added:

“As the CFTC has made clear, registration requirements are a cornerstone of the regulatory framework that protects Americans and U.S. financial markets. Effective anti-money laundering procedures are among the fundamental requirements of intermediaries in the derivatives markets, whether in traditional products or in the growing digital asset market. This action shows the CFTC will continue to work vigilantly to protect the integrity of these markets.”

CFTC Commissioner Brian D. Quintenz issued the following statement on the news:

“I commend the Division of Enforcement for their tireless efforts to ensure that market participants, especially exchanges and intermediaries, comply with the Commodity Exchange Act and CFTC Regulations and don’t skirt those rules to the disadvantage of U.S. customers and law-abiding market participants. As a derivatives market regulator that supports innovation and ingenuity, it is imperative that we actively police trading platform activity and remove the bad apples so that legitimate, law-abiding marketplaces can flourish. We will not stand for any participant brazenly flouting our rules. I look forward to the successful resolution of this matter and the beneficial impact it will have in this market by holding those who deliberately ignore the law accountable.”

The CFTC seeks disgorgement of ill-gotten gains, civil monetary penalties, restitution for the benefit of customers, permanent registration and trading bans, and a permanent injunction from future violations of the Commodity Exchange Act (CEA).

The criminal action alleges that since 2014, BitMEX has illegally offered leveraged retail commodity transactions, futures, options, and swaps on cryptocurrencies including Bitcoin, Ether, and Litecoin, allowing traders to use leverage of up to 100 to 1 when entering into transactions on its platform.

Allegedly, BitMEX has facilitated cryptocurrency derivatives transactions with an aggregate notional value of trillions of dollars, and has earned fees of more than over $1 billion since beginning operations in 2014. The complaint alleges that BitMEX has failed to implement the most basic compliance procedures required of financial institutions that impact U.S. markets. Much of the trading volume, and related transaction fees, derives from the operation of the platform from the U.S. and its extensive solicitation of and access to U.S. customers, the complaint alleges.


CFTC v. BitMEX 10.1.20


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