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BitMEX ordered to pay $100 million for illegal operation of a cryptocurrency trading platform



The CFTC has revealed that the US District Court for the Southern District of New York charged five companies operating the BitMEX cryptocurrency derivatives trading platform, including HDR Global Trading Limited, 100x Holding Limited, ABS Global Trading Limited, Shine Effort Inc Limited, and HDR Global Services (Bermuda) Limited.

The BitMEX entities are required to pay a penalty of $100 million.

Acting Chairman Rostin Behnam said:

Rostin Behnam, CFTC
Rostin Behnam
Source: Twitter

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. The CFTC will take prompt action when activities impacting CFTC jurisdictional markets raise customer and consumer protection concerns.

Acting Director of Enforcement Vincent McGonagle added:

This action highlights that the registration requirements and core consumer protections Congress established for our traditional derivatives market apply equally in the growing digital asset market. Cryptocurrency trading platforms conducting business in the U.S. must obtain the appropriate registration, and must implement robust Know-Your-Customer and Anti-Money Laundering procedures.

CFTC brought charges against the BitMEX entities and their founders, Arthur Hayes, Benjamin Delo, and Samuel Reed in October 2020 for operating the BitMEX platform while conducting significant part of the company’s business from the US. They also unlawfully accepted orders and funds from US customers to trade cryptocurrencies, including derivatives on bitcoin, ether, and litecoin.

bitmex investigation

The US watchdog found that from November 2014 to October 2020 BitMEX offered leveraged trading of cryptocurrency derivatives to retail and institutional customers in the US, while operating as a common enterprise. BitMEX was aware that US customers could access the BitMEX platform.

CFTC also found that US customers placed orders directly through BitMEX’s user interfaces, and that BitMEX acted as a counterparty to certain transactions. This means that BitMEX operated a facility to trade or process swaps without being approved as a Designated Contract Market (DCM) or a Swap Execution Facility (SEF).

Without CFTC registration, BitMEX also operated a Futures Commission Merchant (FCM), including by accepting bitcoin to margin digital asset derivative transactions and acting as a counterparty to leveraged retail commodity transactions. The company also failed to implement a Customer Information Program (CIP) and Know-Your-Customer (KYC) procedures that would enable the identification of US customers using the platform. It also did not implement an adequate Anti-Money Laundering (AML) program.

The CFTC noted that BitMEX has taken remedial actins such as AML and user verification program. BitMEX has also certified to the CFTC that US residents are prohibited from accessing the BitMEX trading platform. As of 30 June 2021, BitMEX is no longer maintaining any operations US, except for limited personnel performing technology, systems maintenance, and security functions.

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BitMEX ordered to pay $100 million for illegal operation of a cryptocurrency trading platform

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