BitMEX Faces Lawsuit for Alleged Racketeering and Extensive Illicit Activities

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BitMEX and its executives have been accused of engaging in or abetting crimes that include racketeering, money laundering, wire fraud and unlicensed money transmission.

BitMEX, one of the world’s largest crypto derivatives exchanges, has been accused in court of being “deliberately designed, from the ground up” to facilitate “a myriad of illegal activities.”

The allegations were made in a major new lawsuit filed by BMA LLC in the United States District Court for the Northern District of California on May 16. 

The plaintiff accuses BitMEX’s parent company HDR Global Trading and the exchange’s top executives — Arthur Hayes, Ben Delo and Samuel Reed — of engaging in or abetting multiple crimes that include racketeering, money laundering, wire fraud and operating an unlicensed money transmitting business. 

The lawsuit claims the defendants have, in a “brazenly, lawless manner,” engaged in these illegal activities and a host of others whose magnitude is purported to be “truly staggering.”

Why is the case being pursued in California?

BMA LLC claims that, despite their rebuttals, BitMEX’s executives maintain close connections to the U.S. and the Northern District of California. The plaintiff cites several sources allegedly close to the company who have previously disclosed to the media that almost 15% of BitMEX’s 2019 trading volume, worth roughly $138 billion, is attributable to U.S. traders

This means that the exchange’s own data allegedly indicates that it has processed an average of $3 billion in money transfers daily without being licensed as a money transmission business in the U.S. 

This represents “the record volume for such unlawful activity in the entire history of the monetary regulation in the United States,” the plaintiff claims.

Parent firm HDR Global Trading — whose name is ostensibly an acronym for Hayes, Delo and Reed — is purportedly listed in the Seychelles. The plaintiff notes that, when asked why the business was incorporated in the country, Hayes publicly claimed:

“‘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.’”

Other allegations — space permitting

BMA LLC accuses the defendants of conspiring to conduct the business through a “pattern of racketeering activity” and engaging in cryptocurrency market manipulation, wire frauds, fraudulent business dealings and numerous other illicit schemes.

The lawsuit notes that BitMEX provides traders with extremely high trading leverage (100x) for highly liquid derivatives, which are purportedly calculated based on prices of “two or three illiquid spot exchanges.” 

The exchange allegedly enables manipulators and money launderers to operate illicitly by allowing them to open an unlimited number of anonymous and unverified accounts, without trading or withdrawal limits.

The document claims that BitMEX weaponizes deliberate server freezes and uses fraudulent “system overload” events to accept or reject specific trading orders during volatile market conditions in order to exacerbate price fluctuations and trigger maximum liquidations.

All this allegedly makes BitMEX “an exquisite ‘designer’ tool for unsavory actors to manipulate cryptocurrency markets.”

The lawsuit further points to the defendants’ own admission, after multiple denials, that the exchange operates its own for-profit trading desk, which purportedly trades against BitMEX’s own customers on the platform and uses inside information about its customers’ existing trading positions.

The full details of the extensive allegations run to over 100 pages.

Recent controversies

As recently reported, BitMEX has continued to lose in both open interest and volume for Bitcoin (BTC) futures since the historic market crash this March and has struggled to defend its market share against competitors such as Binance Futures.

Following the so-called Black Thursday crash, BitMEX witnessed an almost 40% decline in BTC holdings on the platform between March 13 to April 9. 

Controversies have surrounded two DDoS attacks which triggered downtime on the exchange and have even prompted some industry actors to accuse the exchange of being responsible for Bitcoin hitting multi-month lows in March.

BitMEX was also one of the seven crypto firms implicated in a series of new lawsuits alleging violations of U.S. securities laws.