In October, the Commodity Futures Trading Commission (CFTC) and the U.S. Department of Justice (DOJ) filed enforcement actions against the entities and individuals that own and operate the Bitcoin Mercantile Exchange (BitMEX), a trading platform for cryptocurrency derivatives.
The CFTC alleges that since 2014 BitMEX has operated an unregistered trading platform and violated CFTC regulations by, among other things, failing to implement required anti-money laundering (“AML”) procedures. The DOJ in turn is charging BitMEX’s three founders and its first employee with criminal violations of the Bank Secrecy Act (BSA) and conspiracy for willfully failing to establish, implement and maintain an adequate AML program.
Grant Fondo is a partner and co-chair, Meghan Spillane a partner and Galen Phillips an associate in Goodwin’s Digital Currency + Blockchain Practice.
The BitMEX actions signal an expansion of regulatory scrutiny. These actions also emphasize that U.S. regulators will work together to hold individuals responsible for registration violations and inadequate compliance protocols.
While BitMEX is a highly centralized exchange platform where the founders allegedly still collectively exercise 90% ownership and control, the BitMEX actions also have implications for decentralized finance (DeFi). If DeFi platforms offer financial products to U.S. residents, such as derivatives, that would trigger registration or AML obligations for a centralized entity, what is happening to BitMEX suggests the platform and its founders may still face scrutiny from U.S. regulators.
Being registered in the Seychelles allowed BitMEX users to trade cryptocurrency derivatives. As of last year, according to the regulators, BitMEX has allegedly earned more than $1 billion in user transaction fees since 2014. The CFTC asserts BitMEX violated the Commodities Exchange Act by failing to register as a future commissions merchant. The CFTC and DOJ also allege BitMEX failed to…