CFTC receives offers of settlement in BitMEX case
The Commodity Futures Trading Commission (CFTC) is marking some progress in its action against the entities and individuals that own and operate the BitMEX trading platform.
According to a letter filed by the CFTC with the New York Southern District Court on April 4, 2022, the Division of Enforcement of the CFTC has received offers of settlement from Defendants Arthur Hayes, Benjamin Delo, and Samuel Reed that it has recommended to the Commission. The recommendation will be considered by the Commission and, if accepted, would fully resolve the litigation in this case.
The Division anticipates that it may take thirty to forty-five days to complete the recommendation process and for the Commission to approve or reject the settlement.
The CFTC complaint alleges that from at least November 2014 through the present, and at the direction of Arthur Hayes, Ben Delo, and Samuel Reed, 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.
According to the complaint, 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. Yet, as alleged in the complaint, BitMEX has failed to implement the most basic compliance procedures required of financial institutions that impact U.S. markets.
The complaint charges BitMEX with operating a facility for the trading or processing of swaps without having CFTC approval as a designated contract market or swap execution facility, and operating as a futures commission merchant by soliciting orders for and accepting bitcoin to margin digital asset derivatives transactions, and by acting as a counterparty to leveraged retail commodity transactions. The complaint further charges BitMEX with violating CFTC rules by failing to implement know-your-customer procedures, a customer information program, and anti-money laundering procedures.
As alleged in the complaint, BitMEX touts itself as the world’s largest cryptocurrency derivatives platform, with billions of dollars’ of trading volume each day. Much of this 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. Nevertheless, BitMEX has failed to register with the CFTC, and has failed to implement key safeguards required by the CEA and CFTC’s regulations designed to protect the U.S. derivatives markets and market participants.
The CFTC alleges that Delo played a key role in the decisions he and his business partners, co-Defendants Arthur Hayes and Samuel Reed, made that are at the heart of violations of the Commodity Exchange Act (CEA) and CFTC Regulations alleged in the Complaint, including BitMEX’s decision not to implement an effective anti-money laundering (AML) program, a customer information program (CIP), or any know-your-customer (KYC) procedures, and the decision to allow U.S. traders to access and trade on the BitMEX platform.