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CFTC, DOJ Charges BitMEX for Illegal Derivatives Trading and Violating Money Laundering Laws

UTC by Bhushan Akolkar · 3 min read
CFTC, DOJ Charges BitMEX for Illegal Derivatives Trading and Violating Money Laundering Laws
Photo: Depositphotos

The CFTC and the DOJ have sought civil monetary penalties and permanent trading bans on BitMEX for violating several procedures like KYC, anti-money laundering, Bank Secretary Act, while offering crypto derivative services to its customers.

On Thursday, October 1, the U.S. Commodities and Futures Trading Commission (CFTC) and the Department of Justice (DOJ) filed charges against cryptocurrency exchange BitMEX for illegal trading of cryptocurrency derivatives and violating money-laundering rules. The regulator has named BitMEX CEO Arthur Hayes, other co-founders as well as owners of the BitMEX platform. The CFTC noted that the exchange illegally offered its traders leverage commodity transactions, crypto futures, crypto options, etc. It also offered swapped on major cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC).

The CFTC statement noted:

“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 notes that BitMEX facilitated crypto derivatives transactions while failing to follow basic compliance procedures required by any financial institution operating in the U.S. markets. It also specifically mentions that BitMEX failed to implement anti-money laundering procedures as well as know-your-customer procedures. Speaking about this matter, CFTC Chairman Heath P. Tarbert said:

“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.”

DOJ: BitMEX Violates the Bank Secretary Act

In separate charges, the U.S. Department of Justice (DOJ) has also filed criminal charges against BitMEX for violating the Bank Secretary Act. In the press release, they noted that they have arrested BitMEX co-owner, Samuel Reed in Massachusetts on Thursday. It adds that he will be presented in the federal court for criminal proceedings.

Acting Manhattan U.S. Attorney Audrey Strauss said:

“They (defendants) allegedly allowed BitMEX to operate as a platform in the shadows of the financial markets”.

The FBI Assistant Director William F. Sweeney Jr. reported:

“As we allege here today, the four defendants, through their company’s BitMEX crypto-currency trading platform, willfully violated the Bank Secrecy Act by evading U.S. anti-money laundering requirements”.

BitMEX has responded to the charges made by CFTC and DOJ denying all allegations of wrongdoing. In a statement later on Thursday, the exchange wrote:

“We strongly disagree with the U.S. government’s heavy-handed decision to bring these charges, and intend to defend the allegations vigorously. From our early days as a start-up, we have always sought to comply with applicable U.S. laws, as those laws were understood at the time and based on available guidance.”

BitMEX exchange has said that they are still operating as normal and assured that the investors’ funds are safe.

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Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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