From Perpetual Contract Dominance to Shutdown: BitMEX's Rise and Fall Over a Decade

Original Title: "Rise and Fall of the Leverage King: How BitMEX Got Here Today?"

Original Source: "Vanity Fair"
Original Translation: Deep Tide TechFlow

Editor's Note: Today, BitMEX announced that it will officially close its trading platform on September 23, 2026, and has ceased all new user registrations with immediate effect. BitMEX, co-founded by Arthur Hayes, Benjamin Delo, and Samuel Reed, was the first exchange in the crypto industry to introduce and successfully popularize perpetual contracts, exerting a profound impact on the entire crypto derivatives market.

In 2020, the U.S. Department of Justice and the Commodity Futures Trading Commission (CFTC) charged Hayes and other co-founders with violating the Bank Secrecy Act and failing to establish an effective anti-money laundering program, alleging that BitMEX unlawfully provided services to U.S. users. Subsequently, BitMEX's platform market share continued to shrink, and its industry-leading position was gradually overtaken.

In February 2025, there were rumors in the market about its sale, but no further developments were announced. This article was published on February 6, 2021, documenting the early rise and twists of this "futures contract king." The following is the original content:

The Mad Rich

Arthur Hayes' life was exciting, like the billionaire Bobby Axelrod in the TV series "Billions," just replace New York with Hong Kong and inject some Silicon Valley elements.

One moment Hayes was skiing in Hokkaido, the next he was showcasing his skills in the underground court of Central, Hong Kong. At the same time, he kept an eye on a seemingly obscure cryptocurrency exchange where over $3 trillion had flowed through.

This African-American banker transformed into a maverick representative of contemporary financial technology, with movie-star looks and wealth. However, the FBI's description of Arthur Hayes was different: he operated in the "shadows of the financial markets," a fugitive who "defied" the law.

The indictment against Hayes was unsealed in October, with New York prosecutors seeking his arrest and trial on two felony charges that could result in a 10-year prison sentence, but he remains at large in the Asian region.

This is a tale of new money versus old money, where the financial prodigies have disrupted the banking industry's old guard, and U.S. authorities are attempting to apply 20th-century laws to 21st-century innovation.

The prosecutors have accused Hayes and his business partner of violating the Bank Secrecy Act by failing to implement and maintain an adequate anti-money laundering program to evade criminals and dirty money.

Meanwhile, Hayes' colleagues in the cryptocurrency space believe that he is being punished for creating a groundbreaking product that has left legislators and regulators baffled, posing a threat to some of the biggest players in certain markets once it gained widespread adoption.

Some high-profile legal experts have gone as far as to decry the U.S. v. Arthur Hayes case as largely unprecedented absurdity.

As the U.S. Securities and Exchange Commission (SEC) appears to bend to the will of Wall Street titans, eager to punish those who squeezed banks and hedge funds over their GameStop and other stock positions, Hayes may just be the patient zero in exposing the hypocrisy of the high finance industry, a hypocrisy that is now becoming increasingly evident.

Clash of Titans

Hayes, 35, vanished from the internet in October last year. But the crypto heavyweight wasn't always so elusive.

Born into a middle-class family working for General Motors, he grappled with the automaker's ever-changing fortunes, spending his formative years between Detroit and Buffalo, with his mother Barbara pulling strings to get her gifted son into Nichols School, a private educational institution established in 1892.

"He excelled in everything from academics to athletics, to building lasting friendships," read a testimonial on a fundraising page on the school's website, which included Barbara.

"Nichols provided him with an academic foundation, stimulation, and at one point, a scholarship, allowing him to thrive," Hayes, in return, endowed a scholarship to ensure "a deserving student can experience the benefit of a Nichols education for a lifetime."

After graduating from Wharton, he headed to Hong Kong, serving as an ETF market maker at Deutsche Bank and Citibank. Unlike mutual funds, these hybrid securities can diversify investor risk and be traded like stocks. In May 2013, just as Hayes was advancing his career, a pink slip appeared.

One afternoon, while having tea at Marina Bay Sands Hotel in Singapore, he explained, "Bankers will tell you that everyone has a bullet with their name on it." Marina Bay Sands Hotel is the iconic hotel featured in the climax of the movie "Crazy Rich Asians."

He was dressed in his usual attire: a tight T-shirt, jeans, and an expensive watch (Hublot Big Bang). "I am not married, I have no kids, no obligations. I used to be an investment banker, so I am not homeless. I want to build something."

Now, back to that pink slip of paper. Eight years ago, Hayes was laid off, and he decided to go solo, combining his knack for designing innovative financial instruments with a newfound passion: cryptocurrency, specifically Bitcoin.

Initially, Hayes was just a small player in the vast ocean of cryptocurrency, a group that included tax evaders, drug dealers, arms traffickers, child pornographers, libertarians, and wayward bankers yearning for a return to the gold standard.

They were disillusioned with the traditional banking sector and its slow pace, cumbersome account opening, and fund transfer verification requirements, feeling that the relationship between the financial industry and the government had become too cozy.

In their view, starting with the U.S. government and spreading outward, they believed and acted as if they had a monopoly on money, resisting the crypto uprising. People invested in anonymous digital assets to profit, hide wealth, and break free from the establishment.

The crypto gold rush initially attracted three types of players: those with gilded pedigrees and foresight, boiler room loan sharks who could recite enough buzzwords to secure funding, and the inevitable parasites who latched on and tried to feed off others.

Unsurprisingly, Hayes stood among the smart ones.

"I bought my first Bitcoin from Arthur in 2013," recalled Jehan Chu, a New Jersey native who made his way to the Asia-Pacific region by a circuitous route. While studying at Johns Hopkins University, he taught himself how to code, catching the tail end of the first dot-com boom in the late 1990s. After working at a small web development shop in New York, Sotheby's called, seeking Mr. Chu's help to develop its digital business.

"We sold the famous 'Declaration of Independence' in 2000," he exclaimed, pointing to the only remaining copy of the Declaration of Independence in private hands.

Following that $8.14 million transaction, the online markets took a downturn, and Chu moved to Hong Kong to help Sotheby's cater to its ultra-rich Asian clientele, many of whom seemed to have an insatiable appetite for art and antiquities.

In his spare time, Zhu Jiehan organized a brainstorming session for cryptocurrency enthusiasts. What initially started with five people at a smoky bar in Sheung Wan quickly grew into a community of thousands.

By 2016, Zhu had turned "his OCD into a profession," founding Kenetic, a cryptocurrency venture capital firm that has now invested in over 150 companies. Meanwhile, he watched in amazement as his friend Hayes flourished in the crypto world, transitioning from a manual trader to an industry giant. Arthur Hayes' initial foray was into arbitrage trading: buying Bitcoin on one market and selling it at a premium on another.

It wasn't until October 2013 that he encountered an issue accessing his cryptocurrency sent to Mt.Gox, a Bitcoin exchange based in Tokyo that helped customers convert their Bitcoin holdings into traditional fiat currencies such as USD, EUR, GBP, or CNY. In early 2014, Mt.Gox announced that hackers had stolen nearly $500 million from its exchange. Unlike most other investors (around 24,000 of them), Hayes managed to withdraw his funds, learning a valuable lesson in the process: in the originally secure Bitcoin ecosystem, exchanges posed a single point of failure.

Mt.Gox may be the most infamous case, but dozens of exchanges have been hit, resulting in countless billions of Bitcoin and other cryptocurrencies disappearing.

For arbitrage, Hayes decided to take the money elsewhere. When he heard that the price of Bitcoin was significantly higher on exchanges in mainland China, he bought something bundled, moved the coins to a Chinese exchange, converted them to CNY, and walked with a backpack full of cash.

"In a matter of days, I took a bus with some friends, physically crossed the border to Shenzhen, had lunch, and then came back across the border with a legal amount of cash," he recalled, calling it a cunning ploy and quite a money-maker.

But the real-world risks of crossing borders with physical cash made him think. Why not create an online exchange that would allow people to profit from Bitcoin using derivatives?

This idea required serious technical research—not just to build it but also to convince a deeply skeptical crypto community. Fortunately, Hayes had addressed the security and accounting loopholes that plagued early exchanges.

Bitcoin and Beer

In January 2014, Hayes arranged to meet Ben Delo at a luxurious rooftop pool. Delo, a brilliant British mathematician and programmer, was reportedly voted by his Oxford classmates as the most likely to become a millionaire and the second most likely to go to jail. After graduating in 2005, he had stints at IBM, two hedge funds, and later moved to Hong Kong working at JPMorgan.

When Hayes and Darrow came together, there was little indication that they would disrupt the status quo. On paper, both had similar backgrounds: elite education and corporate experience.

However, each was an exception. Hayes, the son of an auto worker, had forsaken the standardized and highly regulated world of investment banking to venture into the wild west of the crypto world, where rules are lax and regulations are few.

Sir Jonathan, the Dean of Worcester College, Oxford, said Darrow "overcame significant challenges in his school career, securing a place at Oxford from a local state school."

In fact, as the son of a civil engineer father and a school teacher mother, diagnosed with Asperger's before, he was expelled from three primary schools. At Oxford, he double-majored in Mathematics and Computer Science, achieving a First in both subjects, a feat known as a double first.

As they planned to make Hayes's vision a reality, Darrow, the backend expert designing complex algorithms and high-speed trading systems, stated that they needed a frontend web developer.

Hayes happened to know just the person, a young American programmer and tech evangelist named Sam Reed, whom he met at one of Reed's talks warning aspiring techies not to join startups, as their bosses often exploit and squeeze their programmers.

When Hayes presented Reed with his idea for a Bitcoin derivatives exchange, Reed didn't think twice and signed on immediately.

Reed was the youngest of three boys, growing up in Manitowoc, Wisconsin. His father was a network administrator in the Air Force, and his mother had been a newspaper editor. Surrounded by old computers, Sam managed to fix them up, starting a paid job at age 12 debugging and repairing computers for friends and neighbors.

Reed was much younger than Hayes and Darrow, but he had been in the crypto game the longest. In 2009, while a senior in Washington, he dubbed himself a "Bitcoiner" and mined Bitcoin on his laptop when it was nearly worthless. Reed had accumulated around 100 Bitcoins along the way, but accidentally wiped his hard drive during a reformat, losing access to the private keys forever.

Compared to Hayes and Darrow, Reed was less institutionalized, having worked at a major defense contractor where he found the corporate world suffocating, biding his time in several startups and freelance gigs before finding his way to Hong Kong in 2013.

During an online career forum at his alma mater, he sat in a small cabin in Thailand and recorded a video where Reed shared tips for the crypto business.

His insights included: "In a gold rush, if you don't want to mine gold, you sell shovels."

Reed had mentioned that he had been considering the idea of ​​building an exchange to trade cryptocurrency and explained his rationale: "If you can cut out the bank, you've cut out a lot of the complexity. You've cut out a lot of the anti-money laundering (AML) and KYC stuff involved in U.S. law, and you've also cut out a lot of fraud because all that, you know, through proper design, is actually verifiable on the internet."

Hayes, Delo, and Reed began to seriously delve into what they called a Bitcoin Mercantile Exchange (BitMEX). Hayes was the CEO, Delo was the COO, and Reed was the Chief Technology Officer, CTO.

Although these titles may sound high-profile, BitMEX initially consisted of only three guys with laptops, working during the day at the Starbucks in the Jardine House, a 1970s Hong Kong skyscraper adorned with porthole windows. In the evenings, they would return to Hayes's apartment with 7-Eleven beers.

NASDAQ Meets Vegas

BitMEX was described as a "peer-to-peer trading platform offering Bitcoin leveraged contracts." It allows users to effectively bet on the future price of the currency with leverage of up to 100 times. In other words, a BitMEX account with $10,000 can seamlessly execute a $1 million trade. The exchange's allure is that people can earn big by putting in relatively small amounts of crypto seed funds.

In a blog post on the BitMEX website, Hayes wrote, "Trading without leverage is like driving a Lamborghini in first gear, you know it's safer, but that's not why you bought it." His friend Zhu Jiehan compared BitMEX to NASDAQ, "if NASDAQ were in Las Vegas."

When asked about the potentially disastrous consequences of allowing people to trade so much on margin, Zhu insisted that personal responsibility has always been at the core of the crypto spirit. "You're going 100x? First, 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 character in the American expat crypto scene. In his own words, his turban is made of a "secret fabric," and there's a clothing line of the same name.

Sawhney has always shown understanding of BitMEX's business model, insisting, "They are running a rather complex gambling environment. But I am a free-market person, and in my view, BitMEX should be able to put forward anything they want; their terms are very clear."

Six years ago, BitMEX's birth was a perfect but also perilous moment. In the eyes of U.S. authorities, Bitcoin was then transitioning from a currency favored by bad actors (illustrated by the 2013 takedown of the infamous Silk Road, a drug and gun marketplace) to an investment-grade asset being bought by institutional players as a hedge against inflation and for the promise of outsized returns. Hayes, Delo, and Reed sat in the catbird seat, amassing vast fortunes. Sources familiar with their finances revealed that all three are billionaires. But at the same time, they were outsiders suddenly playing on a stage where insiders were all seeking cooperation.

Their high-speed, high-leverage characteristics brought to mind the kind of potentially toxic financial instrument that would eventually draw regulatory scrutiny, later prompting laughter in the 2015 film adaptation of Michael Lewis's bestseller "The Big Short," directed by Adam McKay. Despite BitMEX's rapid growth, it also came with alarming risks.

"This thing developed very rapidly; 10 years ago, it didn't exist," explained J. Christopher Giancarlo, who served at the powerful Commodity Futures Trading Commission (CFTC) during the Obama administration and later as CFTC Chairman under the Trump administration. "Regulation always follows innovation, sometimes in democracies, it lags behind other jurisdictions." Giancarlo has spent years urging Congress to enact a comprehensive regulatory framework covering the crypto arena. Instead, legislators have relied on laws from the 1930s—the Securities Exchange Act and the Commodity Exchange Act, which were later amended post the 2008 financial crisis.

Yet, these rules remain very outdated. Therefore, according to Giancarlo, regulators must decide how to oversee pioneering platforms like BitMEX, if any. "There are about 8000 new platform tools identified," he said. In each case, regulators must ask: "Do they fall under CFTC jurisdiction, SEC jurisdiction, or no jurisdiction at all?"

The Magical Thinking

Understanding what BitMEX is selling may be less important than understanding who they are selling to. In our early conversations, Hayes insisted that BitMEX was cautious, with "no U.S. customers," setting up technical barriers such as blocking U.S. IP addresses to prevent American customers from accessing the platform and to keep U.S. regulators out.

But U.S. officials say otherwise. They have not forgotten that BitMEX had many U.S. users, with a large number of them flocking to BitMEX by using Virtual Private Network (VPN) software to disguise their location. Despite Hayes' banking industry background and the department's dedication to enforcing Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements, he was immersed in the deep-seated libertarian world of crypto technology, seemingly turning a blind eye to certain realities. These include: the far-reaching influence of U.S. authorities, a long memory, and the ability to take people down, especially brash newcomers.

"Hayes is a disruptor," argued his friend Mertüm-Demiros. "He is not afraid of controversy, and, you know, history is not kind to these people."

As the Chief Strategy Officer of digital asset investment firm CoinShares, Demiros is known as the Sheryl Sandberg of the crypto tech world. Born in the Netherlands to Turkish parents, Demiros moved to the U.S. at the age of 10, studied Mathematics and Economics at Rice University, and earned an MBA from MIT, where she taught FinTech and blockchain strategy, topics that she later took to students at Oxford University. It is easy to see why Hayes and Demiros became friends and like-minded individuals.

"I feel like an outsider," she said, "In a way, I am a woman, I didn't get Silicon Valley funding, my parents aren't wealthy... My background is different from many people in this industry, and when I walk into a room, people still raise their eyebrows."

"Hayes is the same way," in Demiros' view, "He doesn't have famous venture capital backers, he doesn't have the advantages others possess." Hayes' original sin may be that he refuses to play the game. "He doesn't care about the facades and nonsense, he doesn't care about Silicon Valley and think tanks, all the stupid things done for prestige. He just doesn't care... Sometimes, people's greatest qualities are also their biggest flaws."

BitMEX was established in Seychelles, a move that allowed the startup to grow rapidly and minimize its tax exposure, while Western governments struggled to comprehend even the novel financial instruments and markets BitMEX was building, let alone a new governance structure.

In an investor presentation in 2015, Hayes put forth such a proposition: "Bitcoin derivatives are completely unregulated worldwide... Regulators are still grappling with the issue of fiat to Bitcoin exchange."

It was a magical idea. "There were no rules at the beginning, the government was not interested in setting the rules," Zhu recalled, "You would go to them seeking guidance, but you would get nothing."

“Is this illegal? There is no answer,” he said, only that after the fact, there would be a cryptic order to warn against crypto, usually to address some previously unspecified misconduct by regulators, where Zhu Jiehan saw confusion,

Hayes saw opportunity.

In the nearly one year since BitMEX’s launch, BitMEX’s business was uneventful. “There were some days that we had no trades,” Hayes recalled. “No one buying or selling,” with the fees from trading on the platform barely covering the server bills, which Reed paid with a credit card.

While Hayes and Delo remained in Hong Kong, Reed, now married, moved back to the United States, settling in Milwaukee, where he operated out of a coworking space.

However, the time zone difference worked to their advantage. Delo and Reed, in a hallmark entrepreneurial way, took turns being on “standby” to handle customer support issues 24/7.

By the end of 2015, when it began offering clients 100x leverage - the closest competitor was at 5x, the company's fate changed.

The following year, with Brexit and Donald Trump's election, political turmoil increased cryptocurrency trading volumes. By 2017, BitMEX had to hire 30 employees to cope with the explosive growth in trading volume. The company moved into a new office space, only to quickly outgrow it.

By 2018, BitMEX had become a high-risk bazaar, trading billions of dollars daily. In a meeting, Hayes remarked, “In terms of volume, we are the largest exchange in the world.”

He said BitMEX was “one of the most liquid exchanges in the world, in any asset class.” By this metric, it stood alongside NASDAQ as well as the stock exchanges of New York, London, and Tokyo. In just four years, Hayes’ ambitious vision had transformed the once dilapidated gambling den into this mansion. (Since the indictment was made public in October, BitMEX has suffered a significant blow, with its market share and trading volume plummeting.)

Sharks and Lambs

In May 2018, on the opening day of Consensus Conference (the crypto equivalent of CES), Hayes pulled up in an orange Lamborghini outside the Hilton Hotel in Midtown Manhattan and tweeted, “Did you see my ride today at #Consensus2018?”

A friend insisted he was just mocking the thousands of attendees gathered at the hotel, those who waxed poetic about cashing out on blockchain but had in fact successfully torched millions in venture capital on a shady ICO. However, in hindsight, the ostentatious Lamborghini was likely Hayes painting a target on his own back.

Indeed, the firm's partners have different attitudes toward their image and booming business. Hayes doesn't mind stirring the pot, reveling in the role of a financial outlaw. Reed maintains an extreme level of discretion, a secretive billionaire strolling the streets of Milwaukee.

However, Ben-Delo seems to crave mainstream recognition. When BitMEX was declared the world's largest cryptocurrency exchange in 2018, a string of British newspapers dubbed him the "UK'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," "a public promise to invite billionaires to commit to giving away the majority of their wealth to philanthropy," designed by Bill and Melinda Gates along with Warren Buffett.

In a letter explaining his decision, he wrote, "At age 16 in the UK, I was asked to list my aspirations for the future. I concisely replied: computer programmer, internet entrepreneur, millionaire. I have been extremely fortunate to overshoot those goals and am grateful to be able to sign this pledge."

Two years ago, BitMEX leased the 45th floor of the Center, Hong Kong's most expensive real estate, also home to Goldman Sachs, Barclays, Bloomberg, and Bank of America. Hayes, Delo, and Reed are really setting up shop in this tower.

But BitMEX is eager to express its attitude, so the office is equipped with accessories that old-school companies don't have: a large aquarium housing live sharks.

Taipei Showdown

By the summer of 2019, the amount of funds traded through BitMEX was staggering. On June 27, the company announced a new daily record, reaching a trading volume of $16 billion.

Two days later, Hayes tweeted, "A trillion dollars traded in a year, the data doesn't lie, BitMEX ain't nothing to mess with, @Nouriel see you Wednesday."

The person he cursed on Twitter was Nouriel Roubini, a respected New York University economics professor and one of BitMEX's fiercest critics. Roubini, known as Dr. Doom, was a member of President Clinton's Council of Economic Advisers and held positions at the Treasury, the IMF, and the World Bank. In other words, like Hayes, he also comes from an elite background.

On July 3rd, the two engaged in a showdown on the stage of the Asia Blockchain Summit, dubbed the "Taipei Dispute," as the theme from "Rocky" played overhead, setting the stage for a fiery exchange.

The Professor took the floor first, diving straight into the topic. "In this particular industry, we see some despicable behaviors... criminals, scammers, promoters, and next to me here, we have a gentleman whose clientele consists of degenerate gamblers and retail traders, non-accredited investors."

Roubini, in his Italian-accented English, emphasized, "There's a fantastic account on Twitter called BitMEX Rekt, where 'rekt' means 'wrecked.' Every second, someone gets liquidated by these guys, thousands upon thousands are in financial ruin."

He accused the company of regulatory violations, insisting that in BitMEX trading, "everyone gets rekt," except for Hayes and his cohorts, whom Roubini claimed receive kickbacks and fees, maintaining a liquidation fund profiting off the bankrupt.

Hayes promptly retorted, "BitMEX. Hundred times leverage. So what? You can trade that kind of leverage anywhere you want. In the U.S., we have something called an Exchange-Traded Fund - ETF. There's a great... it shorts volatility... In February 2018, on the most heavily regulated financial market globally, the most liquid day, all these pretty banks, guys in suits, from top-tier universities, your fucking ETF went to zero. Rekt!"

For someone whose background is in building and promoting ETFs, this was an odd statement.

Indeed, Hayes had many fans in the audience that day who believed he, like Facebook's Zuckerberg, had created a complete market from scratch, an influential, secure, high-profit platform that people never knew they needed.

However, as Hayes spoke, his similarities to Zuckerberg were also glaring: arrogance, disdain for authority, and a tone leaning towards self-destruction, all on full display in Taipei.

When the host questioned BitMEX's decision to incorporate in Seychelles, citing the lack of regulations there, Hayes erupted. "Perhaps New York-centric Roubini thinks the New York Department of Financial Services and the New York Attorney General run the only game in town, and we must bow down and kowtow to the U.S. government because it's regulated. Well, I don't know, that just ain't my game."

When asked if he would acknowledge differing regulatory approaches between U.S. and European regulators versus those in Seychelles, Hayes remarked, "Just the cost to bribe them is higher." So how much did Hayes pay to bribe Seychelles regulators? His answer: "A coconut."

A few weeks later, the Doctor of Doom retaliated with a column titled "The Great Crypto Robbery." In it, he raised red flags about systemic illicit activities in offshore exchanges. Still fuming in Taipei, he focused his wrath on BitMEX and its CEO, accusing them of shady business practices such as using an in-house for-profit trading desk to front-run their own clients' trades and take up to half of the liquidation profits, indicating BitMEX had a strong incentive to defraud those trading on the platform.

Roubini then delivered a fatal blow. "A BitMEX insider has revealed to me that this exchange is being massively used by Russian, Iranian, and other terrorists and criminals for money laundering every day; the exchange has taken no measures to stop this because it profits from these trades," he concluded, then he unleashed scorn on regulators, stating, "Regulators have been asleep at the wheel during the cancer of crypto metastasizing process."

Demi Rose took a more charitable view of the Taipei showdown: "This is an example of Hayes' theatrics, Hayes is a performer, he creates a scene."

She marveled at the adoration from complete strangers, even those who got rekt on BitMEX, approaching Hayes on the street, wanting to give him a hug.

"Hayes is like an idol to many," she said. "He believed in us (the crypto community) changing the world. He believed in the monetary revolution. He thought what we as an industry are doing is profound. But he also believed that it should be fun, it should be irreverent, we should be able to laugh at ourselves, and we should be able to bullshit."

Crisis

On October 1, 2020, at 6 a.m., FBI agents parked their cars in front of a cozy suburban house in Boston. Records show that this house was purchased by a Delaware LLC a year ago, and the true owner of the property, Sam Reed, was handcuffed and taken away.

Hours later, Audrey Strauss, the Acting U.S. Attorney for the Southern District of New York (SDNY), and FBI New York Field Office Assistant Director William Sweeney announced the indictment of BitMEX founders Hayes, Delo, and Reed, along with their friend and first employee Gregory Dwyer. They were charged with violating and conspiring to violate the Bank Secrecy Act by "wilfully failing to establish, implement, and maintain an adequate anti-money laundering program." Each charge carries a maximum sentence of 5 years' imprisonment. Reed, the only one present in the U.S. at the time, was released on a $5 million bail and surrendering his passport.

FBI's Sweeney strongly criticized Hayes: "A defendant actually boasted that the company was incorporated in a jurisdiction outside the United States because bribing the regulators in that jurisdiction would only cost 'a coconut'." He warned, "They will soon realize that the cost of their alleged crimes will not be paid in tropical fruit but could lead to fines, restitution, and federal imprisonment."

Professor Rubini had been sounding the alarm for over a year, and in October, the federal government responded. But it was not just the Department of Justice involved; the Commodity Futures Trading Commission (CFTC) aimed to protect retail and institutional investors from fraud, manipulation, and abusive practices related to the sale of futures and options.

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

The criminal case has left legal observers shocked. "I don't know, I've been doing this for a long time, there have been no other criminal prosecutions, certainly no individual criminal prosecutions, based entirely on a failure of an anti-money laundering program," said Laurel Loomis, a financial crime expert who worked at the Department of Justice for 16 years, prosecuted the DOJ's first cryptocurrency case, and now practices privately at O'Melveny & Myers, advising cryptocurrency and blockchain companies. Like other senior DOJ officials I interviewed, she was shocked by the lack of more substantive charges.

"In an indictment, you usually see charges of specific criminal activity, whether it's fraud, credit card theft, child pornography, terrorism financing. In this indictment, you don't see any charges related to any of those things." (Of course, prosecutors who obtained about 100,000 pages of BitMEX documents during the investigation may bring new charges if they deem it necessary and can add to the indictment.)

In contrast, when the Department of Justice pursued another cryptocurrency exchange called BTC-e in 2017, it brought 21 counts, including identity theft and drug trafficking assistance, and aiding criminal organizations in money laundering, including those allegedly responsible for the Mt. Gox hack.

Loomis believes that through BitMEX, U.S. authorities have given a tutorial to the founders of the largest and most brilliant players in the digital asset derivatives space, sending a message to the entire crypto community: "We want to make sure you understand that this industry is under our jurisdiction."

As for the civil lawsuit, a source familiar with the government's thinking said that BitMEX did not get away as it hoped and was not an "exception" within the CFTC's jurisdiction. In fact, exchanges like BitMEX, which are unregistered, are allowed to sell leveraged products to U.S. retail investors but must close those trades within 28 days. The issue is that some of BitMEX's most popular products, namely perpetual contracts, are designed not to expire but to allow people to maintain trading positions.

In short, Hayes, Delo, and Reed, these three savvy individuals, with the help of a cadre of high-priced legal eagles, became victims of the 1936 legal Commodity Exchange Act. This was amended by the Dodd-Frank Act of 2010. The CFTC's new guidelines on such trades, issued only in March of last year, further illustrated this.

The committee did not buy the company's argument that Americans could not participate. According to a civil filing, BitMEX's lion's share of trading volume and fees comes from U.S. customers. Prosecutors alleged that the company's Anti-Money Laundering (AML) and Know Your Customer (KYC) policies and practices were mere window dressing.

BitMEX allowed customers to open accounts with anonymous email and password, deposit Bitcoin, and did not collect any documents to verify the identity or location of the vast majority of users. The CFTC told a federal court, "to disgorge ill-gotten gains, civil penalties, restitution of customer benefits, permanent registrations and trading bans, and permanent bans on future violations" (the company announced in January that all user information on the platform had been verified).

Officials spent a considerable amount of time and plotting to charge BitMEX's founder, saying he had committed serious crimes, which angered the broader crypto community.

Some strongly believe that this game is rigged. "Show me a bank that has not committed money laundering violation, and I can only show you a piggy bank," Zhu Jiehan told me, "It's a double standard. Who went to jail for money laundering at HSBC? Do you know their deals with Iran and all these sanction-breaking activities? They just got fines."

He's not wrong. HSBC admitted to laundering nearly $1 billion for the Sinaloa Cartel and moving funds for sanctioned clients in Cuba, Iran, Libya, Sudan, and Myanmar, but the Department of Justice chose not to prosecute the bank or its officials, opting instead for a $1.92 billion fine and the installation of court-mandated compliance monitoring.

This is hardly an exception. Barclays, BNP Paribas, Credit Suisse, Deutsche Bank, ING, Lloyd's Banking Group, Royal Bank of Scotland, and Standard Chartered Bank have all paid fines for behaviors including money laundering, sanctions violations, and large-scale tax fraud.

In the world of high finance, individual charges against corporate honchos are rare. "You can Google 'Morgan' and 'fraud' to see what comes up," Sawhney suggested, "Wells Fargo, JPMorgan, they have all admitted to fraud, yet their penalties or fines are not as severe as what we see with Hayes."

In fact, just 48 hours before announcing the charges against Hayes and his partners, JPMorgan Chase had reached a "resolution" with the Department of Justice, the Commodity Futures Trading Commission, and the Securities and Exchange Commission, a euphemism in which the bank agreed to pay nearly $1 billion to address two separate fraudulent schemes: one involving precious metals futures and the other involving treasuries and bonds.

The FBI's Swinney was also one of the individuals announcing this deal, 「For close to a decade, many JPMorgan Chase traders and sales personnel openly flouted U.S. laws designed to prevent illicit activity in the markets... Today's deferred prosecution agreement... sends a strong message to others that these types of charges will be actively investigated and pursued.」

Really? Since 2000, the largest bank in the U.S., JPMorgan Chase, has already paid out billions of dollars in fines, with over $2 billion just in anti-money laundering aspects. However, its CEO and Chairman Jamie Dimon and his top lieutenants have not faced criminal charges. Instead, Dimon even participated in the 2020 presidential race and took home $31.5 million in salary and bonuses last year. "You can look at the history of anti-money laundering prosecutions over the last 10 years, you don't see many individuals being named and accused," stated lawyer and crypto expert Limon, 「Of course, when you talk about procedural violations and not actual evidence of money laundering, you wouldn't get that. So, this is unusual. I think it's intentional. I think the government here has made a decision to do this to send a message.」

Deterrence is certainly a key part of the U.S. criminal justice system. However, so is prosecutorial discretion. Whether it's a big bank or even a major pharmaceutical firm like Purdue, whose owners, the Sackler family members, have been accused of knowingly addicting millions of Americans, leading to hundreds of thousands of deaths (the Sackler family denies this).

Zhu, in describing a gentleman's agreement, echoed the sentiments of many.

「These multinational corporations controlled by the elite are very skilled at dealing with government departments. This isn't a quid pro quo; it's an effective partnership that includes the illicit and enforcement aspects, and it's carefully crafted. The Sacklers aren't going to get busted.」

「I can push back on that」 responded former CFTC Chairman Giancarlo, 「The CFTC has never held back in terms of criminal litigation.」 He cited examples like Refco and Peregrine Financial, where, at the commission's urging, CEOs were later charged by the Justice Department and sentenced to long prison terms.

Giancarlo earned the nickname "Crypto Dad" for suggesting to Congress to approach Bitcoin not with contempt, but with an open mind.

In short, he is not anti-crypto. He said neither is his former CFTC colleagues, who made the crypto community take notice last year that the Commission takes its jurisdiction and authority seriously. "BitMEX obviously did not get the memo, and the CFTC came down on them."

However, these charges still caught BitMEX's executives off guard. When the indictment was issued, Arthur Hayes, a Hong Kong resident, was in the UK. While US prosecutors have not initiated an extradition process (partially due to the COVID-19 pandemic), sources close to Hayes say that if an extradition process is announced, he will appear.

Someone told me that Hayes may be in Singapore, where he is said to have a residence, and whether or when he will return to the US to face trial remains an open question.

Nevertheless, even if they ultimately defeat the government in trial or settle beforehand, it does not necessarily mean the end of their troubles. BitMEX and its founders have already faced lawsuits from investors and clients who claim to have lost money trading on a platform that went against them.

However, the most notable allegation comes from an early investor named Frank Amato, who filed a lawsuit seeking to cash out what he claims to be his stake in the company. (A spokesperson for BitMEX's holding company said that the case has been dismissed after the dispute was resolved under a confidentiality agreement.)

In a document filed by Amato, he alleged that Hayes, Delo, and Reed "began misappropriating funds long ago... and knew no later than January 2019 that they were under investigation by the US regulatory agency CFTC, and co-founder Reed made false statements to the Commission."

A source familiar with the Amato lawsuit situation told me that after learning about these circumstances, it was alleged that the two of them paid themselves a total of $140 million in compensation over multiple payments. Although these figures are unverified, considering executives often receive bonuses based on company performance, it may not be entirely untrue, but even for three billionaires, these numbers are quite substantial.

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