Founders and Executives of Cryptocurrency Derivatives Exchange BitMEX Charged
justice.gov
justice.gov
It is also, by far, the best way to gain leverage in cryptocurrency products, with lower fees, great security, and even a wonderful blog and transparency.
I'm interested to what extent the government believes the BSA needs to apply to this, since a different area of the government (IRS) decided BTC was not even a currency. Of course, all of the relevant governing bodies (of which there are many in the US) can all choose their own designations, which may result in apparent inconsistencies, but I wonder to what extent they were warned about this beforehand.
What is also interesting is that Bitmex did not allow US residents to use their exchange via blocking US IP addresses and asking for country of residence, aside from perhaps the first few months. Some US residents would use a VPN and use it instead, but they (the client) would have to lie to Bitmex in doing so. It appears that's what the argument here is - that they did a poor job, knowingly so, of stopping US residents from using their services. BitMex was, over time, implementing tougher KYC, but currently it's not required by all of their clients for a few more months.
[a] When visiting another country, it’s very clear you’re subjecting yourself to their laws (I can’t visit France and expect only US laws will apply to me), but the internet (a global system) poses a problem.
Imagine someone offers you a deal where instead of buying stocks, you agree with someone to pay you the difference between the price of a stock today and whenever you decide to exit the deal. PnL should look a lot like whatever the stock did over the period.
Add to this that of course when the trade starts, it's worth about zero to either side. But there's a chance you're gonna lose money, so the exchange wants you to put up some money. Not the entire amount that the shares cost, because you probably won't lose that much. And we can adjust the margin according to how the market moves.
So you can then get a much larger exposure than if you just bought the stock with the same amount of cash.
Now add to this a minor wrinkle, that is you don't use the cash dollars to buy the bet, you actually use the stock. And if you win, you get more stock.
In government regulated finance, our counsel had very good advice: Don't provoke the regulators.
"One defendant went as far as to brag the company incorporated in a jurisdiction outside the U.S. because bribing regulators in that jurisdiction cost just ‘a coconut.’ Thanks to the diligent work of our agents, analysts, and partners with the CFTC, they will soon learn the price of their alleged crimes will not be paid with tropical fruit, but rather could result in fines, restitution, and federal prison time."
I wouldn't be surprised to see BitMEX continue operating for the next 10 years. Their exchange is simply the best.
They have never been hacked. They actively work to track and stop hacked proceeds from being deposited on their platform; and they do a better job at it than most regulated exchanges. (The complaint alleges one instance of a miss; but just look at the FinCEN leaks to understand how it's impossible to get everything).
3 of the founders live in jurisdictions w/o extradition treaties to the USA, so I hope they will be able to continue operating the best bitcoin exchange.
I pay a thousand a year in trading fees to my stockbroker in Australia and they don't even offer an API.
Last tax year my trading fees were low double digits with bitmex.
The volume with both is about the same.
this really depends on what kind of size you trade and how you execute. Binance futures (their btc/usdt perp) is most likely cheaper if you look at take fee + spread + slippage. Their default taker fee is 4bps (or 3.6 bps if you pay it in BNB). That means you can slip $4 (with BTC at 10k) and pay the same for your exec - but with most sizes you don't slip that much, if you trade small binance is most often better (spread + slippage wise) since the tick size (minimum spread) is 0.01bps instead of 0.5bps. And on top of that you get a massive fee discount.
> I pay a thousand a year in trading fees to my stockbroker in Australia and they don't even offer an API.
I wouldn't compare Bitmex to an Australian stock broker, I would compare it to other crypto exchanges
This used to be lowest, it's pretty high nowadays for traders who do volume (huobi, binance, okex, ftx all have the same product for lower fees). A few other exchanges like Bybit and Deribit have the same fees.
https://www.youtube.com/watch?v=qlZukhN_C6c&feature=youtu.be
Quite fascinating in retrospect. Very testy debate and lots of weaselling work by Author Hayes (BitMEX) to evade direct answers.
That said, like any gov takedown, I'm not entirely sold that there isn't a world where BitMEX was providing a positive development to the industry. One that today simply fits poorly in the current US legislative frameworks [3] or entrenched companies. Of course, ideally it will be within a a more mature structure with better basic oversight and competition (technically Roubini is filling this role ATM) it has a better chance of existing, assuming it doesn't get neutered.
[1] https://en.wikipedia.org/wiki/Nouriel_Roubini
[2] https://www.bloomberg.com/news/articles/2019-07-17/nouriel-r...
[3] Albeit as much as the infrastructure financial 'efficiency optimization' really provides long term value to society instead of just swiping a piece during the elaborate processes created by law and entrenched business.
I'm guessing nobody is going after them because they have China's protection or what? Or did they go through some special regulatory process inside the US?
Some of the big Chinese synthetic USD exchanges don't require any ID verification.
Clawback is a negative but so is the mex insurance fund, specific users end up paying for it (more in aggregate because the size of the fund has to be massive) through stops.
Anyway who has the best synthetic isnt central to the discussion
2. Funding rate stability. aka it doesn't cost much (or actually make you money) to hold the position.
3. Claw-backs, aka you don't wake up one day and find that half your collateral is gone because the market made a big move. This is a big problem especially for Okex.
Basically, a synthetic USD is good if it behaves and yield like a real USD.
BitMEX isn't going through all this trouble and criminal indictment avoiding KYC because people using it are super on the up-and-up and have no problem with validating their identities.
I wonder if the fact that he continually provoked trump... while running an illegal exchange... from within the united states... had anything to do with the charges today? [0]
They still do that, I can confirm.
I wonder who was trying to get the jump on who, both here and there.
Or will it be seized once they are charged in absentia I imagine?
Using a VPN is active circumvention by the user. What's next: banning exchanges that KYC/AML because users can forge IDs?
Doing KYC for US citizens would require doing KYC for everyone, which is not fair at all (on the other case you can't say that particular guy is not from US). That effectively force the whole world to live under US laws requirements.
How could they possibly know this?
> With the opportunities and advantages of operating a financial institution in the United States comes the obligation for those businesses to do their part to help in driving out crime and corruption.
this is pretty default behavior for the US
everything anyone told you about the US dollar use being needed to establish jurisdiction was a lie, I have literally only heard that from crypto people, arent these the same people that used to say “litecoin is asic proof because its memory hard” lmao
right, not new news.
The criminal charges are around the Bank Secrecy Act and Conspiracy to circumvent some Bank Secrecy Act requirements
What right? Its not a right its a privilege the US has that most countries around the world will listen to it. Many countries have laws to exercise jurisdiction outside of their borders, they’re just irrelevant. They are irrelevant markets, irrelevant geopolitically, have no resources to pursue or even bother charging people, faces actual consequences from trading partners if they did try, everything is distinctly opposite for the US.
https://www.justice.gov/usao-sdny/press-release/file/1323316... (Page 8)
It wasn't an America bad argument, it was a global hegemony acknowledgement.
How do you read me talking about how almost everywhere is literally "irrelevant", my words, by all metrics and get an "America bad" argument out of it?
Could have just left that out.
If[0] they posted on American forums or solicited customers on American-hosted sites, they operated in the US for the purposes of the law. You don't have to physically be somewhere to be subject to the law there. Ditto wire and mail fraud that originates overseas.
Mailing a pipebomb from Canada to the US is illegal in Canada, but it's also illegal in the US, even if it was done by a Canadian citizen who didn't step foot here.
Operating outside American AML/KYC law is not quite the same as mailing a pipe bomb, but the jurisdictional issue is hard to distinguish.
[0] (this remains to be proven)
The jurisdiction of any sovereign state is whatever that state says it's jurisdiction is; extraterritorial jurisdiction is not at all uncommon.
In order for an entity to have externally-imposed limits on its jurisdiction, it would have to be answerable to a superior soveriegnty (which would itself either be or be answerable to, perhaps through more layers, an entity without such limitation.)
Besides the office in Manhattan, I'm sure you mean?
https://www.justice.gov/usao-sdny/press-release/file/1323316...
Page 8.
Of course that world order is coming down fast because nobody in the US cares about maintaining it as much as they are interested in proclaiming it.
The best way to stop terrorists are with their funding. Stop the funding and they wither on the vine.
One way they might know is by seeing people posting online about how they used VPNs to get around the block. Crypto traders are often bad at being subtle.
It also alleges that they solicited American customers, which presumably they also have evidence of. For instance, maybe advertising on American websites or posting on forums they knew were frequented by Americans, etc. Maybe they posted winking messages that told Americans how to get around the IP ban? All sorts of possibilities.
Edit: from the indictment, page 7: "internal BitMEX records reflected thousands of BitMEX accounts with United States location information that were enabled for trading." So people volunteered their location information to BitMEX.
Page 12: "the defendants, knew that specific customers, residing in the United States, continued to access BitMEX' s platform... DELO and DWYER knowingly allowed one of these customers to access BitMEX using a non-U. S. passport in the name of a third party that did not belong to this customer. DELO also allowed another customer to continue to access a BitMEX trading account despite this customer being "US based," because "[h]e's famous in Bitcoin," and falsely changed this customer' s internal country of residence to a country other than the United States."
Less trivially: other, out-of-band clues based on support emails sent to BitMEX; location information in BitMEX profile; same username on other platforms and mention of location; that sort of thing
Some friends started a Wealthfront copycat in latinamerica. To get local financial permits they had to comply with a bunch of KYC policies/rules because the US imposes it on their local banks and governments, and in turn the banks demand compliance from them, even though their company is strictly local.
Not exactly the same thing, but both are businesses with an office in a place they can't actually conduct business.
They operated an office in Manhattan and had US customers.
"...the Company also has subsidiaries and affiliates registered in the United States..."
Also keep in mind that currently crypto is a lot bigger outside of the US, most of Asia don't want to deal touch things close to US regulators. Eg. it's why Tether is so much bigger than things like USDC (as they actively fight against US regulators in court to protect users).
1) Registering a company in Switzerland requires a Swiss address and Swiss national as a director. See https://www.companyformationswitzerland.com/register-swiss-c... and elsewhere
2) Registering a Swiss company wouldn't by itself allow them to escape US DoJ enfoncement actions. see https://www.justice.gov/opa/pr/ubs-enters-deferred-prosecuti... for example
3) Registering a Swiss company wouldn't exempt them from KYC requirements http://bankersacademy.com/pdf-aml/amlswitzerland-law.pdf for example says that the swiss AML legislation includes non-bank financial institutions (such as exchanges)
Edit to add: It's also non-trivial to get a Swiss work visa if you're not a national. I had one for a while and it required a Swiss company to use up one of their finite central allocation and show that the work wasn't replacing the job of a Swiss national and was being paid the average wage or more (this to prevent exploitation of migrant labour apparently).
If you just want to work, maybe. If you want to found a company and have half a million CHF of capital, it's a different story.
The other statements still apply.
You can't just put "No Americans (no proof needed)" on a US based website with a lot of US citizen clients dealing in synthetic USD products that's 110% non compliant with almost any US law and expect a nice outcome. Not with those sort of assets and market share.
I legit thought it would've been reduced with Trump because of his isolationist positioning. I guess this is going to be the norm for a distant future. I don't see how this box is closed without an aggressive shift in Geopolitics. I don't see how this would be a peaceful transition but if you see a solution like that, I'd love to hear!
(edited for formatting)
He's very good at convincing people he supports their ideological position when he's really just using it to justify what he wants to do right now for his own reasons and will drop it the second it's not useful. That whys he's anti China until he has to actually take an action on China or exporting jobs or crime and punishment etc. :(
Not American and I'm annoyed by the US pretty frequently but I'm not really sure why the US having teeth when it comes to clamping down on global money laundering is a bad thing.
The financial sector appears to be the one sector where US authorities actually do a good job to stamp out crime, and I can obviously understand why the US will not tolerate an completely unmonitored shadow economy that could easily be used for sanction avoidance by Iran or any other rogue state.
I'd give the US more points for enforcement (which you are correct is strongly pursued) if I thought the laws being enforced were less self serving in the first place...
Drug cartels in the western hemisphere turn out to be pretty violent, to the point where you can think of them as terrorists -- bombings and other mass casualty events.
The other point you make is valid, though.
Sigma-Aldrich and Bayer don't seem like terrorist organizations to me. Or perhaps I missed the headline where Pfizer was caught beheading people?
Terrorist companies would be smarter than that. Sell and market a highly addictive, deadly drug, and profit from it making it look like it's all above board.
Then they blame the users for getting hooked on it on the first place after getting the doctors to prescribe it heavily using kickbacks. And thousands upon thousands of people die.
https://www.newyorker.com/news/news-desk/the-sackler-familys...
You, as a non-US citizen, can do any transaction you want with BitMEX. BitMEX, as a company with US presence in NY, must make sure that you are not a US citizen (maybe based on your declaration that you are not one).
Yeah, they're really great at that /s. It wasn't just last month that it was revealed that US banks laundered $2T. How many people got arrested for that? The Fed even said the disclosure of the banks internal reports was the crime.
https://www.rferl.org/a/global-banks-reported-2-trillion-in-...
Not really surprising that increasing numbers of people would just stop caring about breaking such laws.
I just hope this witch-hunt doesn't end the same as the Dread Pirate Roberts case for the government's political game on controlling cryptocurrencies and maintaining their monopoly over the financial system. Hayes is a great comedic writer and insightful analyst on the global financial system -- I highly recommend his posts on the Bitmex blog. However, I fear the tongue and cheek and comedy will be used against him in the case.
* They went after Kik and Telegram also
They basically don't want anyone to have any option to bypass the Petrodollar
The complaint alleges that the check for a US IP address only happened once and that they did not take any precautions against VPN usage, so as long as you VPN'd once, you could login from US addresses as much as you wanted afterwards.
Furthermore, the complaint alleges that the company leadership received analytics reports broken down by country, including the US; and that the team did not monitor the funds from a hack in 2018, which allowed the hackers to launder those funds.
These allegations may be false, but the case seems strong that Bitmex 1. served US customers, 2. did not comply with the necessary US regulations to serve those customers.
I petitioned support and was unable to get my account restored.
--
It's impossible to monitor EVERY single hack in the crypto space, but BitMEX has actively worked to do their best to track and freeze hack funds.
Their customer service is incredible, when I had an issue with their API, I got a direct response from the CTO fixing my code for me, within the same hour.
When I had a dispute with instrument methodology, one of the founders got back to me in the same day, explaining why.
It has never been hacked or suffered a serious security breach. The only thing I remember was a one-time accidental CC instead of BCC in the newsletter program.
BitMEX immediately closes the accounts of anyone who ever signs in with a US IP, no matter what. I've been there: my bitmex account is permanently closed because I signed into it while I was holidaying to the USA.
They _are_ world policing.
If people want to play with their money on BitMex they should be able to instead of using VPN's to disguise themselves and do it illegally.
But apparently you are only permitted to spend your USD in the manner approved by the U.S. Gov and once the US goes to a digital currency, this whole law enforcement will be 1000x easier as every single transaction can be traced and immediately frozen.