The Commodity Futures Trading Commission today announced that the U.S. District Court for the Southern District of New York entered a consent order against five companies charged with operating the BitMEX cryptocurrency derivatives trading platform. The companies are HDR Global Trading Limited, 100x Holding Limited, ABS Global Trading Limited, Shine Effort Inc Limited, and HDR Global Services (Bermuda) Limited.
The order requires the BitMEX entities to pay a $100 million civil monetary penalty, and provides that up to $50 million of the penalty may be offset by payments the BitMEX entities make or are credited pursuant to a Consent to Assessment of Civil Monetary Penalty entered by the Financial Crimes Enforcement Network (FinCEN). [See FinCEN Press Release]. The order also prohibits BitMEX from further violations of the Commodity Exchange Act (CEA) and CFTC’s regulations as charged.
“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,” said Acting Chairman Rostin Behnam. “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.”
The order stems from a CFTC action filed on October 1, 2020 against the BitMEX entities and their three individual founders, Arthur Hayes, Benjamin Delo, and Samuel Reed. The CFTC complaint charged the entities and founders with operating the BitMEX platform while conducting significant aspects of BitMEX’s business from the U.S. and unlawfully accepting orders and funds from U.S. customers to trade cryptocurrencies, including derivatives on bitcoin, ether, and litecoin. [See CFTC Press Release No. 8270-20]. The CFTC’s litigation against BitMEX’s founders continues.
Case Background
The order finds that from at least November 2014 through October 1, 2020, BitMEX, while operating as a common enterprise, offered leveraged trading of cryptocurrency derivatives to retail and institutional customers in the U.S. and elsewhere, and was aware that U.S. customers could access the BitMEX platform. It further finds that customers in the U.S. placed orders directly through BitMEX’s user interfaces, and that BitMEX acted as a counterparty to certain transactions. Thus, the order finds that BitMEX violated the CEA by operating a facility to trade or process swaps without being approved as a Designated Contract Market (DCM) or a Swap Execution Facility (SEF).
The order also finds that BitMEX violated the CEA by operating as a Futures Commission Merchant (FCM) without CFTC registration, including by accepting bitcoin to margin digital asset derivative transactions and acting as a counterparty to leveraged retail commodity transactions. The order further finds that BitMEX violated CFTC regulations by failing to implement a Customer Information Program (CIP) and Know-Your-Customer (KYC) procedures that would enable the identification of U.S. persons using the platform, and by failing to implement an adequate Anti-Money Laundering (AML) program.
The order recognizes that BitMEX has engaged in remedial measures, including developing an AML and user verification program. Moreover, in connection with the order, BitMEX has certified to the CFTC that anyone located, incorporated, or otherwise established in, or a resident of, the U.S. is prohibited from accessing the BitMEX trading platform; all active users of the platform have undergone user-verification; and all U.S. persons and unverified users have been blocked from trading on the platform or making withdrawals. BitMEX also certified that as of June 30, 2021, BitMEX is no longer maintaining any operations or business functions in the U.S., except for limited personnel performing technology, systems maintenance, and security functions, all of whom have no direct or indirect involvement with marketing or solicitation of customers.
Concurrent with the filing of the CFTC complaint, the U.S. Attorney’s Office for the Southern District of New York indicted Hayes, Delo, Reed, and one other individual, on charges of willfully causing BitMEX to violate the Bank Secrecy Act and conspiracy to commit that same offense. The defendants have entered not guilty pleas in the criminal matter.
The CFTC strongly urges the public to verify a company’s registration with the CFTC before committing funds. If unregistered, a customer should be wary of providing funds to that entity. A company’s registration status can be found using NFA BASIC.
Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online or contact the CFTC Whistleblower Office. Whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the CFTC Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.
The CFTC thanks the Financial Crimes Enforcement Network (FinCEN) for its assistance in this matter. The CFTC also thanks and acknowledges the assistance of the Hong Kong Securities and Futures Commission, the Bermuda Monetary Authority, and the Financial Service Authority Seychelles.
The Division of Enforcement staff members responsible for this case are Carlin Metzger, Joseph Platt, Joy McCormack, Ray Lavko, Elizabeth N. Pendleton, Scott R. Williamson, and Robert T. Howell. Staff from the Division of Market Oversight, Division of Clearing and Risk, and Market Participant Division also assisted in this matter.
