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Founders and Executives of Cryptocurrency Derivatives Exchange BitMEX Charged

172 points by xoxoy 6y ago

LatteLazy 6y ago
I think the World Police BS that America engages needs to stop. That said, these guys have made it really really hard for regulators NOT to act. 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.
- heimatau 6y ago
  > I think the World Police BS that America engages needs to stop. 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)
  - LatteLazy 6y ago
    I think that "locking up foreigners" nationalism is more trumps flavour than "trade with all, allies with none" etc. 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. :(
    - heimatau 6y ago
      > He's very good at convincing people he supports their ideological position That's actually not what he's doing. Look up his history. Evidence speaks for itself but too many are lazy to look it up. > That whys he's anti China Umm. I hate to spoiler your preconceived notions but China's method of governing is absolutely terrifying to a free society. uighur? Great leap forward causalities? Aside from the gaslighting on my part, realize this. China has been known as a global threat for at least 20 years. I was taught this from my science teacher. He told us 'two issues your generation will face; China and water'. America has it's own issues and there is a large segment of the US that believe in Isolationism. FDR led the way there (with failings too). These issues are complicated and not simple but it's still sad that we're seeing World Police Officer be also the function of the US POTUS. P.S. Since HN seems to be anti-anything related to Trump. Let me make it clear. I'm a FDR/Bernie democrat. I voted Green Party last election and will this one too. Trump's policies (and lack thereof) aren't mutually exclusive to Trump.
      - LatteLazy 6y ago
        I mean, you're right he should act on China, a lefty Liberal like me agrees, he promised to do so, and he has all the reasons you listed plus more. So why hasn't he? Because he has no interest in doing anything, he's not committed to any actual policy, except for whatever suits him right now. And that's the real danger: soft power works sometimes, hard power works sometimes, "I'll give you whatever you want if you leave me alone and let me build a hotel" doesn't work (except for building hotels). That's the issue here. Trump is pro trump. He not an isolationist except if (claims of) isolationism forward the trump self service agenda. He'd be a leftist internationalist pro-china stogge if he thought he'd make a buck or get a vote more doing that. Yet people refuse to see this obvious, data driven conclusion...
        cycrutchfield 6y ago
        We are getting a bit off topic, but it’s pretty clear Trump only has one agenda: say anything, do anything to get re-elected. He has no real ideology. No real policies. One might suspect that he is motivated more by fear than by anything else.
        heimatau 6y ago
        > this obvious, data driven conclusion... You've provided no data. Just conjecture.
- Barrin92 6y ago
  >I think the World Police BS that America engages needs to stop 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.
  - LatteLazy 6y ago
    I think that sort of depends on your opinion of US foreign policy. Anti money laundering laws are basically there to stop people doing things the US doesn't like. So if enforcing them means (say) less terrorist attacks GREAT! But the same laws are used much more frequently to try and enforce drug prohibition. That's meh at best in my opinion. And occasionally you see the US use them to prevent countries like Iran buying medical supplies in a pandemic. That's pretty shitty. 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...
    - bb88 6y ago
      > But the same laws are used much more frequently to try and enforce drug prohibition. 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.
      - jliptzin 6y ago
        I’m sure our victory in the drug war will come any moment now.
      - nmlnn 6y ago
        The solution to that is pretty simple.. end drug prohibition.
      - 6y ago
- lend000 6y ago
  Your account is immediately frozen if you log in just once via a US IP address. They track funds from known hacks and are not considered a safe option for hackers to liquidate. They have a much better reputation for service, exchange quality, and account safety than any of their non-KYC competitors. Not a single US dollar has passed through their platform -- nobody is using it for money laundering, but for speculative trading. They still have to convert to fiat somewhere. The fiat on their platform is synthetic. What more were they supposed to do? 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.
  - metadatabad 6y ago
    Exactly. Just like what the other poster said, the World Police BS has to stop now.
  - switch11 6y ago
    Unfortunately, this is very accurate -> 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. * They went after Kik and Telegram also They basically don't want anyone to have any option to bypass the Petrodollar
  - huac 6y ago
    > Your account is immediately frozen if you log in just once via a US IP address. 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.
- hnracer 6y ago
  It's not exactly world policing. They are enforcing alleged violations of their own securities laws.
  - dannyw 6y ago
    Their securities laws only apply to those under US jurisdiction. BitMEX does not accept US customers. 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.
    - hnracer 6y ago
      Bitmex does accept US customers when they use a VPN.
coderintherye 6y ago
>"‘Seychelles is cheaper to bribe than [the United States]’ and when asked how much he had to pay Seychelles to register BitMEX there, he said ‘a coconut.’" In government regulated finance, our counsel had very good advice: Don't provoke the regulators.
- nlh 6y ago
  Great quote from the press release: "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."
  - deleted 6y ago
    [deleted]
  - nmlnn 6y ago
    Would be less cringy if they would go after the management of TBTF banks based on the same logic.
    - hoseja 6y ago
      Why would they go after their employers?
  - dannyw 6y ago
    3 of the 4 defendants "remain at large", and live in countries w/o US extradition treaties. I wouldn't be surprised to see BitMEX continue operating for the next 10 years. Their exchange is simply the best.
ypeterholmes 6y ago
Ironic charge on the heels of the FinCEN leaks. Maybe next time just file a SAR?
- TedDoesntTalk 6y ago
  SARs are warnings, flags. They do not indicate a crime has been committed. And the Dept of Justice does not issue SARs.
  - Lukabuz 6y ago
    I think the OP is talking about BitMex. I work at a crypto exchange and a large part of our team is dedicated to monitoring and reporting(through SARs and STRs) suspicious activity.
  - beagle3 6y ago
    Op is likely referring to the fact that, as shown by the recent FinCEN leaks, big banks like HSBC and Deutsche Bank have processed likely (and likely obviously), but filed SARs so they don't even get a slap on the hand.
atemerev 6y ago
BitMEX only operates with cryptocurrencies. Not a single US dollar ever passed through it. US citizens were explicitly disallowed to use the service, and the US was blocked by IP. Why it even happened?
- csomar 6y ago
  First, because US citizens still traded on the exchange. (mostly through a VPN); and second, Bitmex was offering a synthetic USD product. That's worse than being a non-regulated entity that offers real dollars.
  - spurdoman77 6y ago
    Tough in this case it might be not enough to make authorities from other countries to cooperate. The website is still running and withdrawals are working. For some reason the domain isnt seized.
    - csomar 6y ago
      Withdrawals in Bitmex are processed once a day. Still 18 hours for withdrawals dispatching.
    - jkhdigital 6y ago
      It's not illegal to offer services to non-US customers, so seizing the domain would be disrupting a legitimate business that clears $500M - $5B in daily volume. BitMEX isn't Silk Road.
  - Qasaur 6y ago
    I hope I'm not the only one that finds this completely ridiculous. What right does the U.S. Federal Government have to prosecute people who aren't even operating within their jurisdiction? This is nothing but imperialism and a captured government trying to shut down competitors to U.S.-based regulated exchanges from more crypto-friendly countries.
    - 6y ago
hnracer 6y ago
Huobi, OkCoin, Binance and many others do the identical thing (synthetic USD products - they literally copied Bitmex's business model) and have the same or more volume as Bitmex. 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?
- spurdoman77 6y ago
  Maybe they do more AML/KYC?
- csomar 6y ago
  They all require certain ID verification beyond some balance. Bitmex doesn't, which made it popular by US customers. Also, all of them are terrible for creating a synthetic USD while Bitmex is pretty darn good for that.
  - hnracer 6y ago
    Their synthetic USD is perfectly fine and I would say is better than Bitmex, Bitmex has memes made about how bad their platform is. They were just the first movers/innovators who invented the financial product and now have really good network effects. These other exchanges trade billions in notional synthetic USD per day. Some of the big Chinese synthetic USD exchanges don't require any ID verification.
    - csomar 6y ago
      Ha, we have must very different experiences then. Volatile funding rates, frequent claw-backs and thin order books doesn't make for a perfectly fine USD; but maybe it's just me.
      - hnracer 6y ago
        Huobi and Okex synthetic quarterlies are fine. Not identical to bitmex perp but pretty much the same. 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
x86_64Ubuntu 6y ago
And of course they mention changes to the law caused by the Patriot Act as being the source of the charges.
idorosen 6y ago
One of BitMEX’s security features at one point (if memory serves) was that one (or more) of the principals had to review/approve withdrawals daily. That is likely difficult for them to do from prison or while being detained pending trial or extradition. BitMEX is probably not a great place to have assets that you need access to any time soon right now.
- flyGuyOnTheSly 6y ago
  They're all located in countries that hold no extradition treaty with the United States iirc.
  - miohtama 6y ago
    CTO was arrested in Massachusetts
    - flyGuyOnTheSly 6y ago
      Was that Sam Reed? Damn. 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] [0] https://twitter.com/strml_?lang=en https://twitter.com/strml_?lang=en
      - dannyw 6y ago
        Unlikely that contributed anything, however, if BitMEX donated to Trump's campaign or stayed at Trump properties, I wouldn't be surprised if this indictment would've never saw the light of day.
      - _-___________-_ 6y ago
        First paragraph of TFA: "REED was arrested in Massachusetts this morning"
- jleahy 6y ago
  Hi Ido :-) They still do that, I can confirm.
flyGuyOnTheSly 6y ago
Interesting timing as BitMEX just announced in late August 2020 that they will be enforcing KYC/AML measures early next year. I wonder who was trying to get the jump on who, both here and there.
- wmf 6y ago
  If history is any guide, get your money out before that. You won't be happy when they lock your account and demand a verification document that you can't get.
  - askmike 6y ago
    Not sure what you are referring to, but if you're worried just KYC right now and I don't see the risk of them not giving you your money back for paperwork reasons.
Temasik 6y ago
muh censorshit resistance
flyGuyOnTheSly 6y ago
Why doesn't/hasn't some American three letter agency simply seized the bitmex.com domain? Or will it be seized once they are charged in absentia I imagine?
- jkhdigital 6y ago
  The business itself is not illegal. It is illegal to offer those services to US customers, and they have no KYC verification so it is trivially easy to trade on BitMEX from the US.
  - dannyw 6y ago
    They block US IP addresses. Sign in with a US IP, ever, and your account immediately gets banned. Using a VPN is active circumvention by the user. What's next: banning exchanges that KYC/AML because users can forge IDs?
    - jkhdigital 6y ago
      Seems like the problem isn't that random US citizens can (and do, in large numbers) easily bypass the IP blocking, but that the executives demonstrably knew of specific US citizens who were using the platform and had not gone through any KYC.
      - dmantis 6y ago
        Russia, China, Europe, etc don't arrest American citizens for not comply with local laws (which sometimes are as shitty as American's KYC paranoia) in the internet. 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.
flyGuyOnTheSly 6y ago
How expensive/difficult would it have been for bitmex to register with the SEC and/or CFTC? Jumped through all of the hoops, so to speak?
- qeternity 6y ago
  Registration has nothing to do with it. The lack of AML/KYC controls is the issue. Implementing these would have likely been extremely costly to their business in the form of much lower growth.
  - wmf 6y ago
    Yeah, just look at Gemini/Coinbase liquidity/volume vs. the offshore cowboy exchanges and it's clear that following regulations has a huge cost.
    - askmike 6y ago
      Besides not getting any users, you're also not able to offer products anyone wants. Current "US regulated" exchanges are just money onramps with a fraction of the volume/profit seen in the rest of crypto. 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).
flyGuyOnTheSly 6y ago
>REED allowed a friend of his who he knew resided in the United States to continue to access BitMEX's platform up to and including at least in or about October 2018. How could they possibly know this?
- not2b 6y ago
  An informant, perhaps. They'd have to prove it in court if it's the basis for one of the charges.
- avrionov 6y ago
  They have access to their emails. It is quite obvious from the documents.
HashingtheCode 6y ago
People have the right to use their money how they want without any outside interference. 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.
dannyw 6y ago
BitMEX is the best, most reputable, and most secure crypto derivatives exchange. Their fees are -0.025% (maker) and 0.075% (taker), practically the lowest on the market. 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.
- wmf 6y ago
  And yet none of that goodness counts because they decided not to do KYC.
  - dmantis 6y ago
    Well, good for the people and customers, too.
- jkhdigital 6y ago
  I'll add that they have a fantastic API, by crypto exchange standards. Worst, by far, is OKEx.
  - askmike 6y ago
    except for the overload? Not the fastest API either.
    - DarthGhandi 6y ago
      What alternative would you claim is better with equivalent liquidity? 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.
ve55 6y ago
This is big news. What is interesting about this to me is that unlike many crypocurrency exchanges, bitmex only deals in derivatives. What this means for them is that you can only deposit BTC, and only take out BTC. So they do not give anyone USD, and they do not deposit or withdraw money from anyone's bank. 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.
- Ihfhcub 6y ago
  Bitmex was competent, transparent and trustworthy. I can see why the US govt found them threatening
  - spottybanana 6y ago
    Not doing any KYC/AML with that kind of volumes can't really be seen as competent by any standards. Of course customers love it when KYC procedures are not needed, but from their own perspective they should have tried at least some basic covering of their own ass by investing in compliance.
    - Ihfhcub 6y ago
      They did there job and did it well. What users were happy? I thought US govt was saving as from bitmex? The US govt criminals charges against the owners is a disgusting overreach
wsieroci 6y ago
Real question: why they just did not register their company in countries like Switzerland and operated from there?
- seanhunter 6y ago
  Real answer: 1) Registering a company in Switzerland requires a Swiss address and Swiss national as a director. See https://www.companyformationswitzerland.com/register-swiss-company 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-prosecution-agreement 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 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).
  - tgsovlerkhgsel 6y ago
    > non-trivial to get a Swiss work visa 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.
dmix 6y ago
The video of the debate between the founder of BitMEX and skeptic economist Nouriel Roubini [1], whose 2019 report [2] 'exposed' BitMEX and inspired the gov investigation into the company: https://www.youtube.com/watch?v=qlZukhN_C6c&feature=youtu.be 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 https://en.wikipedia.org/wiki/Nouriel_Roubini [2] https://www.bloomberg.com/news/articles/2019-07-17/nouriel-roubini-ramps-up-campaign-against-crypto-exchange-bitmex 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.
dagaci 6y ago
Virtual money is everywhere, there seem to be many computer games, online gambling systems and on and offline card trading systems, vouchers and points systems. All of which can be traded without any heavy KYC/AML. It would be interesting to know where the line is drawn as Bitmex only trades in Bitcoin for Bitcoin.

172 points by xoxoy 6y ago

I think the World Police BS that America engages needs to stop. That said, these guys have made it really really hard for regulators NOT to act. 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.

heimatau 6y ago
> I think the World Police BS that America engages needs to stop. 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)
- LatteLazy 6y ago
  I think that "locking up foreigners" nationalism is more trumps flavour than "trade with all, allies with none" etc. 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. :(
  - heimatau 6y ago
    > He's very good at convincing people he supports their ideological position That's actually not what he's doing. Look up his history. Evidence speaks for itself but too many are lazy to look it up. > That whys he's anti China Umm. I hate to spoiler your preconceived notions but China's method of governing is absolutely terrifying to a free society. uighur? Great leap forward causalities? Aside from the gaslighting on my part, realize this. China has been known as a global threat for at least 20 years. I was taught this from my science teacher. He told us 'two issues your generation will face; China and water'. America has it's own issues and there is a large segment of the US that believe in Isolationism. FDR led the way there (with failings too). These issues are complicated and not simple but it's still sad that we're seeing World Police Officer be also the function of the US POTUS. P.S. Since HN seems to be anti-anything related to Trump. Let me make it clear. I'm a FDR/Bernie democrat. I voted Green Party last election and will this one too. Trump's policies (and lack thereof) aren't mutually exclusive to Trump.
    - LatteLazy 6y ago
      I mean, you're right he should act on China, a lefty Liberal like me agrees, he promised to do so, and he has all the reasons you listed plus more. So why hasn't he? Because he has no interest in doing anything, he's not committed to any actual policy, except for whatever suits him right now. And that's the real danger: soft power works sometimes, hard power works sometimes, "I'll give you whatever you want if you leave me alone and let me build a hotel" doesn't work (except for building hotels). That's the issue here. Trump is pro trump. He not an isolationist except if (claims of) isolationism forward the trump self service agenda. He'd be a leftist internationalist pro-china stogge if he thought he'd make a buck or get a vote more doing that. Yet people refuse to see this obvious, data driven conclusion...
      - cycrutchfield 6y ago
        We are getting a bit off topic, but it’s pretty clear Trump only has one agenda: say anything, do anything to get re-elected. He has no real ideology. No real policies. One might suspect that he is motivated more by fear than by anything else.
      - heimatau 6y ago
        > this obvious, data driven conclusion... You've provided no data. Just conjecture.
Barrin92 6y ago
>I think the World Police BS that America engages needs to stop 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.
- LatteLazy 6y ago
  I think that sort of depends on your opinion of US foreign policy. Anti money laundering laws are basically there to stop people doing things the US doesn't like. So if enforcing them means (say) less terrorist attacks GREAT! But the same laws are used much more frequently to try and enforce drug prohibition. That's meh at best in my opinion. And occasionally you see the US use them to prevent countries like Iran buying medical supplies in a pandemic. That's pretty shitty. 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...
  - bb88 6y ago
    > But the same laws are used much more frequently to try and enforce drug prohibition. 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.
    - jliptzin 6y ago
      I’m sure our victory in the drug war will come any moment now.
    - nmlnn 6y ago
      The solution to that is pretty simple.. end drug prohibition.
    - 6y ago
lend000 6y ago
Your account is immediately frozen if you log in just once via a US IP address. They track funds from known hacks and are not considered a safe option for hackers to liquidate. They have a much better reputation for service, exchange quality, and account safety than any of their non-KYC competitors. Not a single US dollar has passed through their platform -- nobody is using it for money laundering, but for speculative trading. They still have to convert to fiat somewhere. The fiat on their platform is synthetic. What more were they supposed to do? 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.
- metadatabad 6y ago
  Exactly. Just like what the other poster said, the World Police BS has to stop now.
- switch11 6y ago
  Unfortunately, this is very accurate -> 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. * They went after Kik and Telegram also They basically don't want anyone to have any option to bypass the Petrodollar
- huac 6y ago
  > Your account is immediately frozen if you log in just once via a US IP address. 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.
hnracer 6y ago
It's not exactly world policing. They are enforcing alleged violations of their own securities laws.
- dannyw 6y ago
  Their securities laws only apply to those under US jurisdiction. BitMEX does not accept US customers. 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.
  - hnracer 6y ago
    Bitmex does accept US customers when they use a VPN.

coderintherye 6y ago

>"‘Seychelles is cheaper to bribe than [the United States]’ and when asked how much he had to pay Seychelles to register BitMEX there, he said ‘a coconut.’" In government regulated finance, our counsel had very good advice: Don't provoke the regulators.

nlh 6y ago
Great quote from the press release: "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."
- deleted 6y ago
  [deleted]
- nmlnn 6y ago
  Would be less cringy if they would go after the management of TBTF banks based on the same logic.
  - hoseja 6y ago
    Why would they go after their employers?
- dannyw 6y ago
  3 of the 4 defendants "remain at large", and live in countries w/o US extradition treaties. I wouldn't be surprised to see BitMEX continue operating for the next 10 years. Their exchange is simply the best.

ypeterholmes 6y ago

Ironic charge on the heels of the FinCEN leaks. Maybe next time just file a SAR?

TedDoesntTalk 6y ago
SARs are warnings, flags. They do not indicate a crime has been committed. And the Dept of Justice does not issue SARs.
- Lukabuz 6y ago
  I think the OP is talking about BitMex. I work at a crypto exchange and a large part of our team is dedicated to monitoring and reporting(through SARs and STRs) suspicious activity.
- beagle3 6y ago
  Op is likely referring to the fact that, as shown by the recent FinCEN leaks, big banks like HSBC and Deutsche Bank have processed likely (and likely obviously), but filed SARs so they don't even get a slap on the hand.

atemerev 6y ago

BitMEX only operates with cryptocurrencies. Not a single US dollar ever passed through it. US citizens were explicitly disallowed to use the service, and the US was blocked by IP. Why it even happened?

csomar 6y ago
First, because US citizens still traded on the exchange. (mostly through a VPN); and second, Bitmex was offering a synthetic USD product. That's worse than being a non-regulated entity that offers real dollars.
- spurdoman77 6y ago
  Tough in this case it might be not enough to make authorities from other countries to cooperate. The website is still running and withdrawals are working. For some reason the domain isnt seized.
  - csomar 6y ago
    Withdrawals in Bitmex are processed once a day. Still 18 hours for withdrawals dispatching.
  - jkhdigital 6y ago
    It's not illegal to offer services to non-US customers, so seizing the domain would be disrupting a legitimate business that clears $500M - $5B in daily volume. BitMEX isn't Silk Road.
- Qasaur 6y ago
  I hope I'm not the only one that finds this completely ridiculous. What right does the U.S. Federal Government have to prosecute people who aren't even operating within their jurisdiction? This is nothing but imperialism and a captured government trying to shut down competitors to U.S.-based regulated exchanges from more crypto-friendly countries.
  - 6y ago

hnracer 6y ago

Huobi, OkCoin, Binance and many others do the identical thing (synthetic USD products - they literally copied Bitmex's business model) and have the same or more volume as Bitmex. 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?

spurdoman77 6y ago
Maybe they do more AML/KYC?
csomar 6y ago
They all require certain ID verification beyond some balance. Bitmex doesn't, which made it popular by US customers. Also, all of them are terrible for creating a synthetic USD while Bitmex is pretty darn good for that.
- hnracer 6y ago
  Their synthetic USD is perfectly fine and I would say is better than Bitmex, Bitmex has memes made about how bad their platform is. They were just the first movers/innovators who invented the financial product and now have really good network effects. These other exchanges trade billions in notional synthetic USD per day. Some of the big Chinese synthetic USD exchanges don't require any ID verification.
  - csomar 6y ago
    Ha, we have must very different experiences then. Volatile funding rates, frequent claw-backs and thin order books doesn't make for a perfectly fine USD; but maybe it's just me.
    - hnracer 6y ago
      Huobi and Okex synthetic quarterlies are fine. Not identical to bitmex perp but pretty much the same. 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

x86_64Ubuntu 6y ago

And of course they mention changes to the law caused by the Patriot Act as being the source of the charges.

idorosen 6y ago

One of BitMEX’s security features at one point (if memory serves) was that one (or more) of the principals had to review/approve withdrawals daily. That is likely difficult for them to do from prison or while being detained pending trial or extradition. BitMEX is probably not a great place to have assets that you need access to any time soon right now.

flyGuyOnTheSly 6y ago
They're all located in countries that hold no extradition treaty with the United States iirc.
- miohtama 6y ago
  CTO was arrested in Massachusetts
  - flyGuyOnTheSly 6y ago
    Was that Sam Reed? Damn. 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] [0] https://twitter.com/strml_?lang=en https://twitter.com/strml_?lang=en
    - dannyw 6y ago
      Unlikely that contributed anything, however, if BitMEX donated to Trump's campaign or stayed at Trump properties, I wouldn't be surprised if this indictment would've never saw the light of day.
    - _-___________-_ 6y ago
      First paragraph of TFA: "REED was arrested in Massachusetts this morning"
jleahy 6y ago
Hi Ido :-) They still do that, I can confirm.

flyGuyOnTheSly 6y ago

Interesting timing as BitMEX just announced in late August 2020 that they will be enforcing KYC/AML measures early next year. I wonder who was trying to get the jump on who, both here and there.

wmf 6y ago
If history is any guide, get your money out before that. You won't be happy when they lock your account and demand a verification document that you can't get.
- askmike 6y ago
  Not sure what you are referring to, but if you're worried just KYC right now and I don't see the risk of them not giving you your money back for paperwork reasons.

Temasik 6y ago

muh censorshit resistance

flyGuyOnTheSly 6y ago

Why doesn't/hasn't some American three letter agency simply seized the bitmex.com domain? Or will it be seized once they are charged in absentia I imagine?

jkhdigital 6y ago
The business itself is not illegal. It is illegal to offer those services to US customers, and they have no KYC verification so it is trivially easy to trade on BitMEX from the US.
- dannyw 6y ago
  They block US IP addresses. Sign in with a US IP, ever, and your account immediately gets banned. Using a VPN is active circumvention by the user. What's next: banning exchanges that KYC/AML because users can forge IDs?
  - jkhdigital 6y ago
    Seems like the problem isn't that random US citizens can (and do, in large numbers) easily bypass the IP blocking, but that the executives demonstrably knew of specific US citizens who were using the platform and had not gone through any KYC.
    - dmantis 6y ago
      Russia, China, Europe, etc don't arrest American citizens for not comply with local laws (which sometimes are as shitty as American's KYC paranoia) in the internet. 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.

flyGuyOnTheSly 6y ago

How expensive/difficult would it have been for bitmex to register with the SEC and/or CFTC? Jumped through all of the hoops, so to speak?

qeternity 6y ago
Registration has nothing to do with it. The lack of AML/KYC controls is the issue. Implementing these would have likely been extremely costly to their business in the form of much lower growth.
- wmf 6y ago
  Yeah, just look at Gemini/Coinbase liquidity/volume vs. the offshore cowboy exchanges and it's clear that following regulations has a huge cost.
  - askmike 6y ago
    Besides not getting any users, you're also not able to offer products anyone wants. Current "US regulated" exchanges are just money onramps with a fraction of the volume/profit seen in the rest of crypto. 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).

flyGuyOnTheSly 6y ago

>REED allowed a friend of his who he knew resided in the United States to continue to access BitMEX's platform up to and including at least in or about October 2018. How could they possibly know this?

not2b 6y ago
An informant, perhaps. They'd have to prove it in court if it's the basis for one of the charges.
avrionov 6y ago
They have access to their emails. It is quite obvious from the documents.

HashingtheCode 6y ago

People have the right to use their money how they want without any outside interference. 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.

dannyw 6y ago

BitMEX is the best, most reputable, and most secure crypto derivatives exchange. Their fees are -0.025% (maker) and 0.075% (taker), practically the lowest on the market. 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.

wmf 6y ago
And yet none of that goodness counts because they decided not to do KYC.
- dmantis 6y ago
  Well, good for the people and customers, too.
jkhdigital 6y ago
I'll add that they have a fantastic API, by crypto exchange standards. Worst, by far, is OKEx.
- askmike 6y ago
  except for the overload? Not the fastest API either.
  - DarthGhandi 6y ago
    What alternative would you claim is better with equivalent liquidity? 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.

ve55 6y ago

This is big news. What is interesting about this to me is that unlike many crypocurrency exchanges, bitmex only deals in derivatives. What this means for them is that you can only deposit BTC, and only take out BTC. So they do not give anyone USD, and they do not deposit or withdraw money from anyone's bank. 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.

Ihfhcub 6y ago
Bitmex was competent, transparent and trustworthy. I can see why the US govt found them threatening
- spottybanana 6y ago
  Not doing any KYC/AML with that kind of volumes can't really be seen as competent by any standards. Of course customers love it when KYC procedures are not needed, but from their own perspective they should have tried at least some basic covering of their own ass by investing in compliance.
  - Ihfhcub 6y ago
    They did there job and did it well. What users were happy? I thought US govt was saving as from bitmex? The US govt criminals charges against the owners is a disgusting overreach

wsieroci 6y ago

Real question: why they just did not register their company in countries like Switzerland and operated from there?

seanhunter 6y ago
Real answer: 1) Registering a company in Switzerland requires a Swiss address and Swiss national as a director. See https://www.companyformationswitzerland.com/register-swiss-company 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-prosecution-agreement 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 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).
- tgsovlerkhgsel 6y ago
  > non-trivial to get a Swiss work visa 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.

dmix 6y ago

The video of the debate between the founder of BitMEX and skeptic economist Nouriel Roubini [1], whose 2019 report [2] 'exposed' BitMEX and inspired the gov investigation into the company: https://www.youtube.com/watch?v=qlZukhN_C6c&feature=youtu.be 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 https://en.wikipedia.org/wiki/Nouriel_Roubini [2] https://www.bloomberg.com/news/articles/2019-07-17/nouriel-roubini-ramps-up-campaign-against-crypto-exchange-bitmex 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.

dagaci 6y ago

Virtual money is everywhere, there seem to be many computer games, online gambling systems and on and offline card trading systems, vouchers and points systems. All of which can be traded without any heavy KYC/AML. It would be interesting to know where the line is drawn as Bitmex only trades in Bitcoin for Bitcoin.