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The rise and fall of BitMEX, the king of futures contracts

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A 10,000-word article from Vanity Fair explains the rise and fall of BitMEX, as well as its mysteries and regulatory doubts.

The Rise and Fall of the Leverage King: How did Bitmex get to where it is today?

Original source: Vanity Fair, a famous American lifestyle magazine

原文翻译：深潮 TechFlow

Crazy Rich

Arthur Hayes has a wonderful life, just like Billionaires billionaire Bobby Axelrod. All he has to do is swap New York for Hong Kong and inject some Silicon Valley elements.

One second, Hayes was skiing in Hokkaido, the next, he was playing on the underground courses in Hong Kong's Central district. At the same time, he kept an eye on an anonymous sounding cryptogramcurrencyExchanges, on which more than $3 trillion of money once flowed.

The African American banker became a maverick contemporaryfinancialRepresented as a technological pioneer, with the good looks and wealth of a screen star. But the FBI's description of Arthur Hayes is different: a wanted man who operates in the "shadows of financial markets" and "flouts" the law.

Mr. Hayes's indictment was unsealed in October, and prosecutors in New York want to arrest him and try him on two felony charges that could carry a 10-year prison sentence, but he remains at large in Asia.

It's a story of old money and new moneyThe children of financial wizards upend banking veterans, and the US authorities try to apply 20th-century laws to 21st-century innovation.

Prosecutors accused Hayes and his business partners of violating the Bank Secrecy Act by failing to implement and maintain an adequate anti-money laundering program to avoid criminals and dirty money.

At the same time, Hayes's colleagues in the cryptocurrency world argue that he has been punished for creating an original product that has overwhelmed lawmakers and vexed regulators and, once widely embraced, threatens some of the biggest players in the market.

Some high-ranking legal experts are even more vocal, arguing that United States v. Arthur Hayes is largely unprecedented and absurd.

When the Securities and Exchange Commission (SEC) seems to listen to the Wall Street giant command, eager to punish those who because of the suppression of Banks and hedge funds on the GameStop and other stock trading positions and day traders were looted, hayes may just be exposed the hypocrisy of senior financial sector was zero when the patient, and this kind of hypocrisy now is becoming more and more obvious.

The first bucket of gold

Hayes, 35, disappeared online in October. But the crypto giant wasn't always so elusive.

He was born in middle-class families work for general motors, and subject to the fate of the auto giant changing between Detroit and buffalo, hayes spent his age, his mother, Barbara, trying to make her talented son entered the school, Nichols was founded in 1892 by a private education institutions.

"He was successful at everything, from school to the playground to lasting friendships," said one of Barbara's affidavits, read on a fundraising page on the school's website.

"Nichols gave him the background, the stimulation and, at one point, a scholarship to thrive." In return, Hayes sponsored a scholarship to ensure that "a competent student will be able to experience the excellence and lifelong benefits of a Nichols education."

After Wharton, he moved to Hong Kong to work for Deutsche Bank and CitibankBanks act as market makers for exchange-traded funds, hybrid securities that, unlike mutual funds, can be diversifiedinvestmentAnd can be traded just like a stock.

In May 2013, hayes just step forward, want to make a career, a pink list of people sacked at present.

"Bankers tell you that everyone has a bullet with their name on it," he explains over tea one afternoon at the Marina Bay Sands hotel in Singapore. The Marina Bay Sands was the iconic hotel in the finale of the movie "Crazy Asian."

He was wearing his standard outfit: a tight T-shirt, jeans and an expensive watch (Hublot Big Bang). "I'm not married, I have no children, I have no obligations. I used to be an investment banker, so I'm not living on the streets. I wanted to build something. "

Go back to the pink slip. Eight years ago, Hayes was out of work and decided to strike out on his own, combining his knack for designing novel financial instruments with his newfound passion: cryptocurrencies, specifically bitcoin.

At first, Hayes was a minor figure in a vast sea of cryptocurrencies that included tax evaders, drug dealers, arms dealers, child pornographers, liberals, and roguish bankers eager to return to the gold standard.

They are frustrated with old-fashioned banking, with its slow pace, onerous verification requirements for opening accounts and transferring funds, and feel that the relationship between finance and government has become too cosy.

From their point of view, starting with the U.S. government and spreading out, they believed and acted as if they had a monopoly on money, resisted the crypto uprising. People are investing in anonymous digital assets to make profits, hide wealth and get out of the way of the establishment.

The crypto gold rush initially attracted three types of players: visionaries with gold-plated resumes, boiler room loan sharks who could recite enough buzzwords to finance themselves, and the inevitable parasites who caught and tried to extract food from each other.

Not surprisingly, Hayes stood in the middle of the smart crowd.

"I bought my first bitcoin from Usher in 2013." A native of New Jersey, Jehan Chu recalled, he followed a circuitous route to the Pacific Rim. As an undergraduate at Johns Hopkins, he taught himself how to code, just in time for the first dotcom boom in the late 1990s. After working in a small Web development shop in New York, Sotheby's called, asking Mr. Zhu to help the auction house develop its digital business.

"We sold the famous Declaration of Independence in 2000.""He exclaimed, pointing to the only copy of the Declaration of Independence in his private hand.

After the $8.14 million deal, the online market slumped, and Mr. Zhu moved to Hong Kong to help Sotheby's cater to its ultra-wealthy Asian clientele, many of whom have a seemingly insatiable appetite for art and antiquities.

In his spare time, Zhu organizes brainstorming sessions for cryptocurrency enthusiasts. What started with five people in a smoky bar in Sheung Wan quickly grew into thousands of communities.

By 2016, Zhu had "turned his obsessive-compulsive disorder into a career," founding Kenetic, a cryptocurrency venture capital firm that has now invested in more than 150 companies. At the same time, he watched in amazement as his friend Hayes blossomed in the crypto world from an artisanal trader to an industry Titan.

Arthur Hayes started out as an arbitrage trade: buying bitcoins in one market and selling them at a premium in another.

It wasn't until October 2013 that he ran into problems accessing the cryptocurrency he had sent to Mt.Gox, a Tokyo-based bitcoin exchange that helps customers convert their bitcoin holdings into traditional fiat currencies such as dollars, euros, British pounds or renminbi.

In early 2014, Mt.Gox announced that hackers had stolen nearly $500 million from its exchanges. Unlike most other investments and (about 24,000), Hayes managed to get the money out, and in the process learned an important lesson: in the originalsecurityThe exchanges constitute a single point of failure in the Bitcoin ecosystem.

Mt.Gox is perhaps the most notorious case where dozens of exchanges have been hit, and untold billions of bitcoins and other cryptocurrencies have disappeared.

To make an arbitrage, Hayes decided to take his money elsewhere. When he heard that bitcoin was trading significantly higher in mainland China, he bought the bundle, transferred the coins to a Chinese exchange and exchanged them for renminbi, carrying a backpack with a wad of banknotes.

"Over the course of a few days, I actually crossed the border to Shenzhen by bus with some friends, had lunch, and came back from the border with a legal amount of cash," he recalled. It was a tricky trick, and relatively lucrative.

But in the real world, the dangers of moving real money across borders got him thinking. Why not create an online exchange where people can make money from bitcoin by using derivatives?

The idea required serious technical research -- not only to make it happen, but also to convince a deeply skeptical crypto community that, thankfully, Hayes had already addressed the security and accounting vulnerabilities that plagued earlier exchanges.

Bitcoin and beer

In January 2014, Mr. Hayes arranged to meet Ben Delo, a brilliant British mathematician and programmer whose fellow students at Oxford were said to have chosen him as the most likely to become a millionaire and the second most likely to go to prison, at a luxury rooftop swimming pool. After graduating in 2005, he worked for IBM, two hedge funds and, after moving to Hong Kong, JPMorgan Chase.

When Hayes and Del Low got together, there was little sign that they were going to disrupt the order.On paper, both men have the same resume: elite education and inA large companyI have been in office for a long time.

However, everyone is an exception. Hayes, the son of a car worker, has abandoned the formalized and highly regulated world of investment banking for the Wild West of the crypto world, where rules are freewheeling and regulations are rare.

Sir Jonathan, provost of Worcester College, Oxford, said Dro had "overcome great odds in his school career to win a place at Oxford from a local state school".

In fact, as the child of a civil engineer father and a school teacher mother, he had been expelled from three primary schools before being diagnosed with Asperger's. At Oxford, he took a double major in math and computer science, earning what the British call a double first and graduating with perfect GPAs in both subjects.

As the two mapped out what it would take to bring Hayes's vision to life, Mr. Delo, an expert in back-office work that designs complex algorithms and high-speed trading systems, said they needed a front-end Web developer.

Hayes happen to know a person, he is a young American programmers and technical evangelist, named Sam - Reed (Sam Reed), chuck hayes is in Reed in a speech to know him, Reed warned in a speech aspiring professionals don't join venture company of science and technology, because the company boss often exploitation and squeezing their programmers.

When Mr. Hayes presented Mr. Reid with his idea for a bitcoin derivatives exchange, Mr. Reid immediately signed it off without much thought.

Mr. Reid, the youngest of three boys, grew up in Manitowoc, Wis. His father was a network administrator for the Air Force; his mother was a newspaper editor. There e were many old computers around the Reed family. Sam managed to repair them, and by the time he was 12, he had a paid job debugging and repairing computers for friends and neighbors.

Reed was much younger than Hayes and Dello, but he was encryptingThe gameFor the longest time. During his senior year in Washington in 2009, the self-described "bitcoin hipster" mined for bitcoins on his laptop, which were then worth next to nothing.

Reed amassed about 100 bitcoins along the way, but in the process of reformatting his hard drive, he accidentally erased the private keys needed to access them, losing them for good.

Less institutional than Mr Hayes and Mr Delo, Mr Reid worked for a large defence contractor, found the corporate world suffocating and bided his time in a few start-ups and freelance jobs before finding his way to Hong Kong in 2013.

In a video recorded at an online career forum at his Alma mater, where he sat in a cabin in Thailand, Reid shared tips on the encryption business.

Among his insights: "In the gold rush, if you didn't want to mine gold, you sold shovels."

Reid has said he has been toying with the idea of setting up an exchange to trade cryptocurrencies, and explained his reasoning: "If you can cut the banks, you cut out most of the complexity. You get rid of a lot of AML, KYC, things like that that are covered by US law, and you get rid of a lot of fraud because all of this, you know, by design, money on the Internet is actually verifiable.

Mr. Hayes, Mr. Delo and Mr. Reed began to take a serious look at what they called the Bitcoin Commodity Exchange, or BitMEX. Hayes is CEO, Dello is COO, and Reed is CTO.

While these titles may sound high profile, BitMex started with just three good-looking guys with laptops", works by day in a Starbucks in Jardine Matheson Tower, a 1970s Hong Kong skyscraper decorated with portholes. At night, they would return to Mr. Hayes's apartment with 7-Eleven beer.

NASDAQ meets Vegas

BitMEx is described as a "peer-to-peer trading platform offering leveraged contracts for bitcoin." It allows users to effectively bet on the future price of the currency with up to 100 times leverage. The translation is that a customer with $10,000 in a BitMex account can seamlessly execute a $1 million transaction. The lure of the exchange is that people can make a lot of money by investing relatively little crypto seed money.

In a blog post on BitMex, Hayes wrote: "Trading without leverage is like a Lamborghini in first gear. You know it's safer, but that's not why you buy it."

His friend Zhu Jiehan compares BitMex to Nasdaq, "if Nasdaq were in Las Vegas".

When asked about the potentially disastrous negative impact of letting people trade so much on margin, Zhu insisted that personal responsibility has always been at the heart of the crypto ethos. You're driving 100 times? First of all, make sure you read the fine print. Mom's not here to make sure you don't fall off your skateboard."

Hartej Singh Sawhney is another colorful figure in the American expat crypto community.His headscarves are, in his words, made of "secret fabric" and he has a clothing line of the same name.

Sawhney has long been sympathetic to BitMex's business model, insisting: "They're running a pretty complex casino environment. But I'm a free market guy, and in my opinion Bitmex should be able to come up with anything, and their terms are very clear."

BitMex's birth six years ago was perfect timing, but fraught with danger. In the eyes of the US authorities, Bitcoin was on its way from being a currency favored by bad guys (exemplified by the 2013 crackdown on the notorious "Silk Road" black market for drugs and guns) to an investment-grade asset that institutional players started buying as insurance against inflation and because of its promise of excess returns.

In the catbird seat, Hayes, Dello, and Reed began to amass huge fortunes.All three are billionaires, according to a source familiar with their finances.

But at the same time, they are outsiders, suddenly playing in an arena where insiders are seeking to work together.

The characteristics of their high efficiency, high leverage reminiscent of the potentially toxic financial instruments, these instruments will eventually cause regulatory review, then in Adam McKay (Adam McKay) in 2015, according to Michael Lewis (Michael Lewis) best-selling adaptation of the movie "the big short" laughter, although the BitMEX in rapid development, but it is also accompanied by a terrible risk.

"This thing has been growing very fast, it did not exist 10 years ago," John casteen hristopher Giancarlo, explained that he had during President barack Obama in the powerful commodity futures trading commission (CFTC), then the President as the CFTC trump, chairman of the "regulation always with after innovation, sometimes, in a democracy, it behind other jurisdictions."

Giancarlo has been pressing Congress for years to come up with a comprehensive regulatory framework covering the crypto space.Instead, lawmakers have relied on laws from the 1930s -- the Securities and Exchange Act and the Commodity Exchange Act, which were later amended after the 2008 financial crisis.

Even so, the rules are still very outdated. So, according to Giancarlo, regulators must decide how to regulate a pioneer platform like BitMex, if at all. "There are about 8,000 new platform tools that have been identified," he says. In each case, regulators must ask: "Are they under the jurisdiction of the CFTC, the SEC, or no agency?"

Magic idea

Knowing what BitMex is selling may be less important than knowing who it is selling to. In our earlier conversation, Hayes insisted that BitMex was careful to have "no U.S. customers" and had technical barriers, such as blocking U.S. IP addresses to keep U.S. customers out of the platform, as well as U.S. regulators.

But American officials say that is not the case. They did not forget that Bitmex has a lot of American users, many of whom use virtual private network (VPN) software to disguise their location, and thousands of people flock to Bitmex.

Despite Hayes' background in banking institutions, with an entire department dedicated to enforcing anti-money laundering (AML) and know-your-customer (KYC) requirements, his immersion in the deep liberalism of cryptography seems to have blinded him to some realities.Among them: American authorities have wide influence, long memory and the ability to knock people down, especially savage upstarts.

"Hayes is an iconoclast," his friend Meltem-Demiros argued. He's not afraid of controversy, and, you know, history hasn't been kind to these people."

As chief strategy officer of digital asset investment firm CoinShares, Demiros has been called the Sheryl Sandberg of crypto technology.

Born in the Netherlands to Turkish parents, Demiros moved to the United States at age 10 to study math and economics at Rice University. She earned her MBA from MIT, where she taught fintech and blockchain strategy, majors she later brought to Oxford students. It is not hard to see why Hayes and Demelore became friends and kindred spirits.

"I feel like an outsider," she says. "In a sense, I'm a woman, I'm not funded by Silicon Valley, and my parents aren't rich.... I don't come from the same background as a lot of people in this industry, and people still raise their eyebrows when I walk into a room.

"The same goes for Hayes," according to Demiros. "He doesn't have a famous VC backer. He doesn't have the advantages that others have." Hayes' original sin may have been his refusal to play." He doesn't care about the blushes and the bullshit. He doesn't care about Silicon Valley and the think tanks, all the stupid things they do for popularity. He just doesn't care.... Sometimes people's greatest quality is also their greatest fault."

BitMEX was incorporated in the Seychelles, a move that allowed the start-up to grow quickly and minimize its tax riskWestern governments can hardly even understand the exotic financial instruments and markets that BitMEX is building, let alone create a way of governance.

In a speech to investors in 2015, Hayes made this argument: "Bitcoin derivatives are completely unregulated on a global scale.... Regulators are still trying to resolve the issue of fiat and bitcoin exchanges."

It's an amazing idea. "In the beginning there were no rules, and the government was not interested in clarifying them," Zhu remembers. "You would go to them for guidance and nothing would come of it."

"Is it illegal? There is no answer." Only after the fact, he said, do veiled diktat to police encryption, often in response to violations that regulators had not previously illuminated. The difference is that Mr. Zhu saw a mess and Mr. Hayes saw an opportunity.

For nearly a year after its launch, BitMEX's business has been lackluster. "There were days we didn't trade," Hayes remembers. "No one buys or sells," and the fees for transactions on the platform barely cover the server's bill, which Mr Reid paid with a credit card.

While Mr. Hayes and Mr. Del Lo stayed in Hong Kong, Mr. Reid married and moved back to the United States, settling in Milwaukee, where he operated out of a co-working space.

However, the difference in time zones works to their advantage. In typical entrepreneurial fashion, Del Low and Reed take turns being "on call" 24/7 to solve customer support issues.

The company's fortunes changed in late 2015 when it started offering clients leverage of 100 times -- five times that of its nearest competitor.

The following year, with Brexit and the election of Donald Trump, political turmoil increased cryptocurrency trading. By 2017, BitMex had to hire 30 people to cope with the explosive growth in trading volumes. The company moved into new office space, but soon became unusable.

By 2018, BitMex had become a high-risk marketplace, trading billions of dollars a day. At a conference, Hayes commented: "We are the largest trading platform in the world in terms of volume."

He said BitMEX was "one of the most liquid exchanges in the world, regardless of the asset class." On that measure, it is in the same league as Nasdaq and the New York, London and Tokyo stock exchanges. In just four years, Hayes has turned a run-down casino into this house. (BitMex has taken a huge hit since the indictment was announced in October, with its market share and trading volume falling sharply.)

The Sharks and the Lambs

In May 2018, on the opening day of the Consortium, the crypto equivalent of the Consumer Electronics Show, Hayes drove an orange Lamborghini to the Hilton Hotel in Midtown Manhattan and tweeted, "Have you seen my # Consens2018 ride today?"

One friend insisted that he was just mocking the thousands of attendees gathered at the hotel who were talking about cashing out on crypto when they had actually managed to burn millions of venture capital on rogue ICOs. In retrospect, though, it's likely that Mr. Hayes painted a bull 's-eye on his back for the high-profile DeLamborghini.

It is true that the partners of the firm have different attitudes towards their image and thriving business. Hayes didn't mind rocking the boat, basking in his role as a financial rebel. Reid, who keeps an extremely low profile, is a secretive billionaire on the streets of Milwaukee.

Mr Ben-Delo, however, seems to crave mainstream recognition.When BitMex was announced as the world's largest cryptocurrency exchange in 2018, a string of British newspapers referred to him as "Britain's youngest self-made billionaire."

In October of that year, he donated £5 million to Worcester College, Oxford, and a few months later he signed the "Giving Pledge", designed by Bill Gates and Melinda and Buffett, which "openly invites the billionaire......" Publicly committed to giving the majority of his wealth to charity."

"At the age of 16 in England, I was asked to list my ambitions for the future," he wrote in a letter explaining his decision. "Computer programmer, Internet entrepreneur, and millionaire, I have been fortunate enough to surpass these goals, and I am grateful to be able to sign this pledge."

Two years ago, Bitmex leased the 45th floor of the Yangtze Centre, the most expensive property in Hong KongIt is also home to Goldman Sachs, Barclays, Bloomberg and Bank of America. Hayes, Dello, and Reed are really moving into the building.

But BitMex was eager to make its point, so it outfitted its offices with accessories that none of the established companies had:A large aquarium in which live sharks live.

The battle for Taipei

By the summer of 2019, the amount of money traded through BitMEX was staggering. On June 27th it announced a new daily record of $16 billion.

"Hayes tweeted two days later. Traded$1 trillion in one year, the numbers don't lie, BitMEX isn't a fucking thing, @nouriel I'll see you on Wednesday."

The person he cursed on Twitter was Nouriel Roubini, a respected economics professor at New York University and one of BitMex's fiercest critics.Known as Dr. Doom, Roubini was a member of President Clinton's Council of Economic Advisers and has served at the Treasury Department, the International Monetary Fund and the World Bank. In other words, he, like Hayes, comes from an elite background.

On July 3, the two faced off on stage at the Asia Blockchain Summit in what was billed as the "Taipei dispute"."As the theme of" Rocky "plays overhead.

The professor spoke first and cut to the chase. In this particular industry, there will be some shoddy behavior... . Criminals, con artists, salesmen, and so on. Next to me is a gentleman who works with corrupt gamblers and retail investors, non-accredited investors."

"There is a great account on Twitter called Bitmex Rekt," Roubini stressed in his Italian-accented English. "Retk means' Shit, every second people are being liquidated by these guys. Thousands of people are in financial trouble."

He accused the company of violating regulations, insisting that trading on BitMEX, "everyone will be rekt," except Hayes and his colleagues, Roubini said, who receive commissions and fees and maintain a liquidation fund that profits from people who go bankrupt.

Hayes quickly countered, "Bitmex. A hundred times leverage." So what? You can trade this leverage anywhere you want. In the United States, we have something called an exchange-traded fund, or ETF. There's a great...... It's [based on] shorting volatility... February 2018, the most liquid day in the most regulated financial markets in the world, all these nice banks, guys in suits, go to top-tier universities, and your ETF goes to fucking zero. Rekt!"

It's an odd statement for a man who built and promoted ETFs.

In fact, Hayes had many fans in the auditorium that day who believed that he, like Facebook's Zuckerberg, had created an entire marketplace from scratch, a powerful, secure, and highly profitable platform that people never knew they needed.

Still, other similarities between Mr. Hayes and Mr. Zuckerberg became apparent as he spoke: arrogance, disdain for authority and a self-destructive tone, all of which were on full display in Taipei.

When the host questioned BitMex's decision to register in the Seychelles, someone said there were no regulations, and Hayes lost his head. Maybe the US-centric Roubini thinks that the New York Department of Financial Services and the New York Attorney General are the only game in town and that we have to knuckle down and be subservent to the US government because it is regulated. Now, I don't know, it's really not my game."

Asked if he was likely to concede that regulators in the United States and Europe had different regulatory strategies from their counterparts in the Seychelles, Hayes said: "It's just more expensive to bribe them." So how much did Hayes pay to bribe the Seychelles? His answer was: " A coconut."

A few weeks later, Dr. Doom hit back with an op-ed titled "The Great Crypto Heist."In it, he raised red flags about systematic illegal activity on offshore exchanges. Still angry in Taipei, he focused his anger on BitMEX and its CEO, accusing them of crude business practices such as using an in-house for-profit trading arm to trade first with its own customers and taking as much as half of the profits from clearing, suggesting that BitMEX had a strong incentive to defraud people trading on the platform.

Then Roubini delivered the coup de force." BitMex insiders told me that the exchange was being used on a daily basis to launder money on a massive scale by terrorists and other criminals in Russia, Iran and elsewhere; The exchange did nothing to stop this because it profited from these trades." Finally, he humiliated the regulators by saying, "They slept while encrypting cancer metastasis."

Demiros has a kinder view of the Taipei brawl: "It's an example of Hayes acting. Hayes is a performer. He creates a scene."

She marveled at the adoring of total strangers, even those rekt on BitMex, who would approach Hayes on the street and want to give him a hug.

"To a lot of people, Hayes is like an icon,"She said. "He believes we are going to change the world. He believed in the monetary revolution. He thinks what we're doing as an industry is profound. But he also believed that it should be funny, it should be rude, we should be able to laugh at ourselves, and we should be able to talk nonsense."

The crisis

At 6 a.m. on October 1, 2020, FBI agents pulled up in front of a comfortable house in a Boston suburb.Records show that the house was purchased a year ago by a Delaware limited liability company and the real owner, Sam Reed, was led away in handcuffs.

Hours later, acting U.S. Attorney Audrey Strauss of the Southern District of New York (SDNY) and William Sweeney Jr., head of the FBI's New York field office, announced charges against BitMex founders Hayes, Dlow, and Reed, as well as their friend and first employee, Gregory Dwyer.

The men were charged with violating and conspiring to violate the Bank Secrecy Act by "willfully failing to establish, implement and maintain an appropriate anti-money laundering program." Each charge carries a maximum sentence of five years in prison. Reed, the only defendant in the United States at the time, was released on $5 million bail and after agreeing to surrender his passport.

Mr Sweeney of the FBI lashed out at Mr Hayes: "One defendant boasted that the company was incorporated in a jurisdiction outside the US because it cost 'a coconut' to bribe the regulator there." "They will soon learn that the price of their alleged crimes will not be paid with tropical fruit, but could result in fines, restitution and federal jail time," he warned.

Professor Roubini had been sounding the alarm for more than a year, and in October, the federal government responded. But it's not just the Justice Department that's involved. The Commodity Futures Trading Commission aims to protect retail and institutional investors from trading in futuresoptionsThe impact of related fraud, manipulation and abuse.

The CFTC filed a civil lawsuit against BitMex and its founders, accusing it of operating an unregistered trading platform and failing to implement required anti-money laundering procedures.

The criminal case has shocked legal observers." I don't know, I've been doing this for a long time and there have been no other criminal prosecutions, certainly not a single criminal prosecution against an individual, based solely on the failure of the anti-money laundering program." So says Laurel Loomis, a financial crime expert who spent 16 years at the Justice Department and prosecuted the department's first digital currency case, now at O'Melveny & AMP; Myers is in private practice and advises cryptocurrency and blockchain companies. Like other Justice Department veterans I spoke with, she was shocked that there were no more substantive charges.

"In indictments, you'll often see allegations of specific criminal activity, whether it's fraud, credit card theft, child pornography, terrorist financing. In this indictment, you don't see any allegation of any of these things." (Of course, prosecutors who obtained about 100,000 pages of BitMEX documents in the course of the investigation could bring new charges and additional charges if they deem it necessary.)

By contrast, when the Justice Department in 2017 pursued another namedBTC-E's crypto trading platform, it charged 21 counts, including identity theft and aiding drug trafficking, as well as aiding criminal syndicates to launder money, including those allegedly responsible for the Mt.Gox hack.

Lomis believes that through BitMEX, the US authorities have trained the founders of the biggest and most brilliant players in digital asset derivatives, sending a message to the crypto community: "We want to make sure you understand that this industry is under our control."

As for the civil suit, a source familiar with the administration's thinking said BitMEX failed to get its way, making an "exception" to the CFTC's jurisdiction.

In fact, an unregistered exchange such as Bitmex is allowed to sell leveraged commodities to US retail investors, but it must complete those trades within 28 days. The problem is that some of BitMex's most popular products, known as perpetuity contracts, are designed not to expire but to let people keep trading positions.

In short, Hayes, Derro, and Reed, three smart guys, with the help of a lot of high-priced legal people, fell victim to the 1936 law, the Commodity Exchange Act.This was amended in the Dodd-Frank Act of 2010. The CFTC's new guidelines on such transactions, which came out only last March, shed further light on this.

The committee did not believe the company's claim that Americans could not participate. According to a civil filing, most of BitMex's trading volume and fees came from US customers. Prosecutors allege that the company's Anti-Money Laundering (AML) and Know Your Customer (KYC)policyAnd the practice is just window dressing.

BitMEX allows customers to open accounts using anonymous email and passwords and deposit bitcoin. BitMEX does not collect any files to verify the identity or location of the vast majority of users." "It seeks the surrender of ill-gotten gains, civil penalties, restitution of customer benefits, a permanent registration and trading injunction, and a permanent injunction against future violations," the CFTC told the federal court. (In January, the company announced that all user information on the platform had been verified.)

officialstheIt took a lot of time and planning to accuse BitMex's founder of a serious crime that infuriated the broader crypto community.

Some feel strongly that the game is rigged." "Show me a bank with no money-laundering violations and I'll show you a piggy bank," Zhu told me. "It's a double standard. Who's in jail for money laundering at HSBC? Do you know about their dealings with Iran and all these sanctions violations? They were just fined."

He was right. After HSBC admitted to laundering nearly $1 billion for the Sinaloa cartel and diverting money for sanctioned clients in Cuba, Iran, Libya, Sudan and Myanmar, the Justice Department chose not to prosecute the bank or its officials, instead ordering it to pay a $1.92 billion fine and install court-appointed compliance monitoring programs.

This is hardly an exception. Barclays, BNP Paribas, Credit Suisse, Deutsche Bank, ING, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered have all paid fines for offences including money laundering, sanctions breaches and massive tax fraud.

Charges against individual corporate executives are rare in the world of high finance. "You can search for 'Morgan' and 'fraud' on Google and see what comes up, "Sawhney suggested." Wells Fargo, JPMorgan Chase, they've all pleaded guilty to fraud, and none of their penalties or fines are as severe as what we've seen with Hayes."

In fact, before the announced the charges against hayes and his partners for 48 hours, jpmorgan chase and the justice department and the commodity futures trading commission and the securities and exchange commission "have reached a resolution," this is a euphemism in the resolution, the bank agreed to pay nearly $1 billion, in response to two different fraud scheme: a involves the precious metals futures, another involving Treasury bills and bonds.

Mr. Sweeney of the FBI was one of those who announced the trade. "For nearly a decade, many J.P. Morgan traders and salespeople openly ignored U.S. laws designed to prevent illegal activity in the marketplace... Today's deferred prosecution agreement... Strongly remind others that such allegations will be vigorously investigated and pursued."

Is it true? JPMorgan Chase, America's biggest bank, has paid tens of billions of dollars in fines since 2000, including more than $2 billion in anti-money laundering charges alone. However, CEO and Chairman Jamie Dimon and his top lieutenants have not been held criminally responsible. In contrast, Dimon, who ran for president in 2020, received $31.5 million in salary and incentives last year.

"If you look at the history of anti-money laundering prosecutions over the last 10 years, you don't see a lot of individual defendants named,""Of course, you don't do that when you're talking about violations of procedure, not evidence of actual money laundering," Rimon, the lawyer and encryption expert, explained. So this is unusual. I think it was intentional. I think [here] the government made a decision to do this to send a message."

Deterrence is, of course, an important part of the American criminal justice system. But so, too, is prosecutorial discretion. Whether big banks or even big pharmaceutical companies like Purdue, their owners, the Sacklers, are accused of knowingly addicting millions of Americans and causing hundreds of thousands of deaths (the Sacklers deny this).

Zhu echoed many in his description of a gentleman's agreement.

"These multinationals, which are controlled by the elite, are very good at dealing with the government sector. It's not a quid pro quo, it's an effective partnership that includes elements of illegality and enforcement, and it's carefully designed. The Sacklers will not be caught."

"I can counter that," replied Giancarlo, a former CFTC chairman. "The CFTC has been pretty good at pursuing criminal prosecutions." He cited the examples of Refco and Peregrine Financial, where, at the commission's urging, the Justice Department charged chief executives who were later given lengthy prison sentences.

Giancarlo earned the nickname "Crypto Dad" for suggesting that Congress "treat bitcoin not with contempt, but with openness."

In short, he is not anti-cryptocurrency. Neither are his former CFTC colleagues, who put the crypto community on notice last year that the commission takes its jurisdiction and authority seriously, he said. BitMex clearly didn't get the memo, and the CFTC stepped in to sanction them."

Still, BitMex executives were caught off guard by the allegations. Mr. Delo, a Hong Kong resident, was in the United Kingdom at the time of the indictment. Although US prosecutors have not initiated extradition proceedings, in part because of the New Crown outbreak, sources close to Mr Delo said he would appear in court if the proceedings were made public.

I have been told that Hayes may be in Singapore, where he is said to have residences, and that when or whether he will return to the United States to face trial remains an open question.

But even if they eventually defeat the government in a trial or reach a pre-emptive settlement, that will not necessarily mean the end of their troubles. BitMex and its founders have been sued by investors and customers who claim to have lost money trading on a platform that was stacked against them.

But the most striking allegation came from an early investor named Frank Amato, who filed a lawsuit to cash out of his claimed stake in the company. (A spokeswoman for Bitmex Holding said the case was dropped after the dispute was settled on confidentiality terms.)

In a filing by Amato, he alleged that Hayes, Dello and Reed "began misappropriating funds long ago... (and) no later than January 2019 knowing that they were under investigation by the CFTC, the US regulator, and that co-founder Reid had made false statements to the commission.

A source familiar with Amato's lawsuit told me that after learning about it, the two allegedly paid themselves multiple payments of $140 millionWhile these numbers can't be verified -- and aren't necessarily bogus, given that executives often receive bonuses based on their company's performance -- they are significant even for the three billionaires.