BitMEX enters $100M settlement with US regulators, but founders still not out of trouble

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BitMEX has entered a $100 million settlement agreement with U.S. regulators after a legal battle that started in October 2020. The derivatives trading platform allegedly violated U.S. regulations when it offered investment products without acquiring the necessary license and failed to implement customer identification programs. Despite the settlement, the cryptocurrency exchange’s founders and top executives are still not out of trouble.

The Southern District of New York entered the consent order against five companies associated with BitMEX. The five were HDR Global Trading Ltd, 100x Holding Ltd, HDR Global Services (Bermuda) Ltd, ABS Global Trading Ltd and Shine Effort Inc.

BitMEX settled with the Commodity Futures Trading Commission (CFTC) and the Financial Crimes Enforcement Network (FinCEN). The $100 million settlement is the largest in the digital currency exchange sector since 2017’s $110 million fine imposed on the now-defunct BTC-e exchange which was charged with facilitating ransomware and dark-web drug sales.

Aside from the massive fine, BitMEX also committed to not serving U.S. clients again. According to the CFTC, BitMEX confirmed it ceased all activities—except cyber services—in the U.S. on June 30, 2021. Malcom Wright, the chief compliance officer at BitMEX, must also certify in writing to the CFTC that it has blocked all U.S. clients.

“This case reinforces the expectation that the digital assets industry, as it continues to touch a broader pool of market participants, takes seriously its responsibilities in the regulated financial industry and its duties to develop and adhere to a culture of compliance,” Rostin Benham, the acting chairman of the CFTC commented.

According to Alex Hoeptner, the CEO of BitMEX, the settlement “will only accelerate our evolution, and puts us firmly on the right path.”

In his statement, the CEO claimed that the exchange has rectified the things that landed it in trouble with the regulators. “…we’ve established industry standard user verification, compliance, and AML capabilities in a concerted effort since 2019,” he claimed.

While the settlement is a win for BitMEX, its founders are not yet out of the woods. Arthur Hayes, Ben Delo and Sam Reed are all still on the Justice Department’s radar. If anything, the settlement puts them in more trouble. This is because as part of the settlement, BitMEX agreed to share loads of corporate records and witness interview memos with prosecutors. These documents could give the DoJ the ammunition it needs to take down the three.

A spokesperson for the three said in a statement, “As their defense will show, from the company’s earliest days, the co-founders sought to comply with applicable law as it developed over time. The actions against Arthur, Ben, and Sam by the U.S. authorities are unfounded and represent an unwarranted overreach. The co-founders look forward to defending themselves in court.”

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—a from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple and Ethereum—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.