An earlier post discussed that BitMEX, one of the world’s largest cryptocurrency trading platforms, entered a Consent Order with the U.S Commodities Futures and Trading Commission under which it agreed to pay a $100 million civil monetary penalty. Subsequently, in February 2022, two BitMEX co-founders, Arthur Hayes and Benjamin Delo, pled guilty to violating the BSA in February 2022.
On March 9, 2022, the third co-founder, Samuel Reed, pled guilty to violating the Bank Secrecy Act by willfully failing to establish, implement, and maintain an anti-money laundering (“AML”) program at BitMEX.
According to the Indictment, public court filings, and statements made in court, Reed was one of the three co-founders and the long-time Chief Technology Officer of BitMEX, an online cryptocurrency derivatives exchange that, during the relevant time period, had U.S.-based operations and served thousands of U.S. customers, notwithstanding false representations to the contrary by the company. From at least September 2015, and continuing at least through the time of the Indictment in September 2020, Reed willfully caused BitMEX to fail to establish and maintain an AML program, including a KYC program for verifying the identify of BitMEX’s customers. As a result of its willful failure to implement AML and KYC programs, BitMEX was in effect a money laundering platform. For example, in about May 2018, Reed was notified of allegations that BitMEX was being used to launder the proceeds of a cryptocurrency hack. Neither Reed nor the company filed a suspicious activity report thereafter (indeed, BitMEX filed no suspicious activity reports at all between 2014 and September 2020), nor did BitMEX implement an AML or KYC program in response.
The Justice Department said that Indictment, public court filings, and statements made in court further showed that Reed failed to institute AML or KYC programs at BitMEX despite closely following U.S. regulatory developments that made clear his legal obligation to do so if BitMEX operated in the United States, which it did. Despite repeatedly stating that BitMEX did not serve U.S. customers, including to individuals outside of BitMEX, Reed knew that BitMEX’s purported withdrawal from the U.S. market in or about September 2015 was a sham, and that purported “controls” BitMEX put in place to prevent U.S. trading were an ineffective facade that did not, in fact, prevent users from accessing or trading on BitMEX from the United States. Reed not only understood that U.S. customers continued to trade on BitMEX, but derived substantial profits from BitMEX as a result of U.S.-based trading.
Under the terms of his plea agreement, Reed agreed to pay a $10 million criminal fine. He has yet to be sentenced but can receive up to five years in prison, according to the Justice Department.