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CFTC Charges BitMEX With Illegal Activity | BitMEX Denies

The CFTC, or, The Commodity Futures Trading Commission, just announced that BitMEX, along with 3 individual and 5 corporate entities were in violations of several US federal laws on trading and derivatives.

On Oct 01, 2020, BitMEX, along with CEO Arthur Hayes, company owners Ben Delo and Samuel Reed, and corporate entities HDR Global Trading Limited, 100x Holding Limited, ABS Global Trading Limited, Shine Effort Inc Limited and HDR Global Services (Bermuda) Limited were alleged by the CFTC to have offered customers in the US, illicit crypto derivative trading services. BitMEX has received more than $11 billion in bitcoin deposits and has made more than $1 billion in fees, while conducting its business from the U.S. by also accepting orders and funds from the customers there. BitMEX was charged with: 

  • Executing futures transactions on an unregistered board, 
  • Offering illegal options, 
  • Failing to register as a futures commission merchant, 
  • Failing to register as a designated contract market, 
  • Failing to implement proper know-your-customer rules and 
  • other counts, according to the legal filings made by CFTC. 

“Digital assets hold great promise for our derivatives markets and for our economy,” said Chairman Heath P. Tarbert. “For the United States to be a global leader in this space, it is imperative that we root out illegal activity like that alleged in this case. New and innovative financial products can flourish only if there is market integrity. We can’t allow bad actors that break the law to gain an advantage over exchanges that are doing the right thing by complying with our rules.”

Some background on the case

The complaint propagates that from at least November 2014 until today, BitMEX has illegally offered leveraged retail commodity transactions, futures, options, and swaps on cryptocurrencies including Bitcoin, Ether, and Litecoin. The complaint further charges BitMEX with violating CFTC rules by failing to implement know-your-customer procedures, a customer information program, and anti-money laundering procedures. 

Additionally, CFTC has also alleged that BitMEX has facilitated cryptocurrency derivatives transactions with an aggregate value of about trillions of dollars, and has earned fees of more than over $1 billion since the beginning of the operations in 2014. 

Yet, as alleged in the complaint, BitMEX has failed to implement the most basic compliance procedures required of financial institutions that impact US markets. The complaint charges BitMEX with operating a facility for the trading without a CFTC approval as a designated contract market or swap execution facility. 

Not only this, BitMEX was also charged with operating as a futures commission merchant by soliciting orders for and accepting bitcoin to margin digital asset derivatives transactions, and by acting as a counterparty to leveraged retail commodity transactions. 

Official BitMEX response to the allegations

In an official statement, an external HDR global spokesperson disagreed and pushed back these charges by saying, “We strongly disagree with the U.S. government’s heavy-handed decision to bring these charges, and intend to defend the allegations vigorously”. They also entailed that from their early days as a start-up, they have always “sought to comply with applicable US laws, as those laws were understood at the time and based on available guidance“.

BitMEX’s official Telegram group later expanded on this, and added that the platform was operating normally and was recommending users to reach out to its support page if they had any further queries.

In the meantime, the BitMEX platform is operating entirely as normal and all funds are safe according to them. “To allay any potential customer concerns, pending withdrawal requests were processed at 17:45 UTC, in line with our standard procedures. We will process another off-cycle withdrawal at 08:00 UTC, 02 Oct 2020, and then 13:00 UTC, as usual” responded BitMEX. 

The CFTC strongly urges the public to verify a company’s registration with the Commission first, before investing funds. If unregistered, a customer should be cautious enough to not provide the same, to that company. A company’s registration status can be found and verified using NFA BASIC.

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