Arthur Hayes agrees to arrest on Bank Secrecy charges

Former BitMEX  CEO Arthur Hayes has agreed to surrender to U.S. authorities on charges of violating the Bank Secrecy Act.

Hayes and two other founders of the cryptocurrency derivatives exchange were indicted on Oct. 1 by the U.S. Department of Justice, along with a fourth executive. All stepped down from positions at the Seychelles-based exchange within a week of the indictments.

Hayes will be the last of the three taken into custody under the terms of a deal outlined in a March 16 court filing by his attorney, James Benjamin. He will fly to Hawaii to surrender on April 6, with an agreement in place to be released on $10 million bail.

Bloomberg reported yesterday that Delo surrendered on March 15 after travelling from the U.K.  to New York, where the three will be tried in the U.S. District Court for the Southern District of New York. The third founder, Samuel Reed, was arrested in Massachusetts just before the indictments were made public. He posted bail of $5 million on Oct. 8.

All three have plead not guilty to violating the Bank Secrecy Act and conspiring to violate it by failing to put sufficient anti-money-laundering safeguards in place. Each charge carries a sentence of up to five years in jail.

The trio were also sued in civil court by the Commodity Futures Trading Commission (CFTC) which charged that they operated “an unregistered trading platform and violating multiple CFTC regulations, including failing to implement required anti-money laundering procedures.”

At the time the indictments were announced, FBI Assistant Director William F. Sweeney Jr said one of the defendants “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.’”

According to the CFTC, BitMEX “has received more than $11 billion in bitcoin deposits and made more than $1 billion in fees, while conducting significant aspects of its business from the U.S. and accepting orders and funds from U.S. customers.”

The exchange had a formal ban on U.S. citizens using its service, but it was so easily bypassed  that it amounted to allowing them to trade on BitMEX, the government alleged.

The regulator is seeking “disgorgement of ill-gotten gains, civil monetary penalties, restitution for the benefit of customers, permanent registration and trading bans, and a permanent injunction from future violations of the Commodity Exchange Act (CEA).”

In an unrelated case, the CFTC is reportedly investigating if the world’s largest cryptocurrency exchange, Binance, still serves American customers seeking to trade derivatives, despite having kicked all U.S. citizens off its platform after founding the Binance.US exchange, which claims to be a separate entity. 

Bloomberg noted that the fourth defendant, head of business development Gregory Dwyer, was still at large. 

Benjamin’s filing with the court noted that after “extensive discussions” Hayes and the DoJ agreed to a $10 million bond secured by $1 million in cash, to be co-signed by his mother.

In a very unusual agreement, Hayes will be allowed to retain his passport and reside in Singapore during the trial, returning as needed. He will sign a waiver of extradition form.

While the terms of the deal call for his release once he has been arranged, it noted that he will have to quarantine in place before returning to Signapore, where he lives with his wife. 

“As the criminal case moves forward, he will of course travel to New York as needed for court appearances and meetings with counsel,” Benjamin wrote.  

In the wake of the indictments, BitMEX owner 100x Group hired Alexander Höptner, CEO of the German stock exchange Börse Stuttgart to replace Hayes on Dec. 1. On Jan. 7, it instituted a new, far tougher user verification program—which it said was “the result of years of work to develop a robust compliance function to meet international standards.”