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 on unsealed Thursday that helped send Bitcoin down almost 2 per cent.
The indictment, which was accompanied by a civil action by the US 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 US 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 on Thursday and fell as much as 1.8 per cent to about $10,500 following the announcement of the charges. It has climbed about 50 per cent since December, continuing the volatility of recent years that saw it surge 95 per cent in 2019 after tumbling 73 per cent 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. Mr 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 the second-largest, behind Binance. To serve US customers, it was required to register with the CFTC and establish adequate programmes 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 US 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.
Updated: October 1, 2020 09:51 PM