Crypto-billionaire and former BitMEX CEO Arthur Hayes was living large until the Feds swooped in claiming he was skirting U.S. financial laws by operating in the “shadows of the financial market”.
The African American banker-turned-maverick was living in Asia but surrendered in April 2021 to U.S. authorities in Hawaii to face charges that he had failed to take steps to prevent his pioneering cryptocurrency exchange from being used for money laundering.
Hayes, a former equities trader for Citigroup Inc. in Hong Kong, co-founded the Seychelles-based BitMEX in 2014. His co-founders included Benjamin Delo, an Oxford-educated computer scientist who previously developed high-frequency trading systems for JPMorgan Chase, and Samuel Reed, a programmer specializing in web applications.
Hong Kong-based BitMEX is a peer-to-peer crypto exchange and derivative trading platform. It is one of the world’s biggest cryptocurrency trading exchanges and claims it processes more than $1.7 billion in daily derivatives transactions.
Hayes bootstrapped during the early days of BitMEX and part of his claim to fame is building the team that made the exchange what it is today. But his luck seems to have run out.
Some crypto enthusiasts are calling out the Feds for double standards when dealing with the Black crypto-billionaire.
While banks are fined for mistakes such as not developing strong enough controls to stop money laundering on their platform, Arthur Hayes was arrested for it and could face jail time, Twitter user Dare Obasanjo @Carnage4Life tweeted.
“Fascinating tale of BitMEX, a Bitcoin exchange which was founded by and created first Black crypto billionaire. Founders are facing criminal charges for not doing enough to stop money laundering. A double standard as banks are fined not arrested for this,” wrote Obasanjo.
By contrast, a former SEC commissioner raked in $30 million from the online trading platform Robinhood without any repercussions from regulators, the exchange’s initial public offering prospectus showed.
As novices, seasoned individuals and institutional investors flock to crypto exchanges, Hayes’ arrest is part of an ongoing U.S. crackdown on these platforms.
Here are seven things you need to know about the U.S. government vs. Hayes:
Haye’s case is viewed as an example of old money fighting the newfound wealth of financial whiz kids on the block, Vanity Fair reported. State prosecutors allege that Hayes and his business partners violated the Bank Secrecy Act by failing to implement and maintain an adequate anti-money-laundering program to weed out bad actors and dirty money. However, crypto insiders believe he is being punished for building an ingenious product that has baffled lawmakers and regulators.
In its eagerness to punish unregulated crypto traders, the U.S. Securities and Exchange Commission may have landed on Hayes and his cohort of founders to set an example. In the wake of the GameStop short squeeze, regulators have been hawkish on anything that looks likely to threaten the status quo.
Hayes, 35, was raised in a middleclass family with both his parents working for General Motors. He attended prestigious schools and colleges in the U.S. and abroad. He is nothing like the typical crypto bubbleheads as he understands the inner workings of the crypto markets and ran his entity with the brightest and smartest in the business.
Hayes and other BitMEX executives actively worked to skirt compliance programs and bragged about flouting U.S. laws, prosecutors say. Hayes allegedly said the founders chose to register the exchange in Seychelles to escape regulatory scrutiny.
Despite BitMEX founders being charged with flouting anti-money laundering rules, the cryptocurrency derivatives exchange still operates. In January, it announced that its customer verification program had been fully implemented for active users.
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In its early days, BitMEX was careful to have “no American customers”, according to Hayes. Technological barriers such as blocking U.S. I.P. addresses kept American clients off the platform, and consequently kept U.S. regulators at bay. But eventually, U.S. depositors, many of whom disguised their location by using virtual private network (VPN) software, flocked to the platform – dragging the SEC with them.
BitMEX was incorporated in Seychelles, a known tax haven, to help it avoid paying taxes in the U.S. and other Western jurisdictions. This helped it to move fast and minimize tax exposure while Western governments struggled to understand—much less create a way to govern—the new financial instruments and market that BitMEX was building. The platform created a space that could help Bitcoin traders profit from their holdings by using derivatives as cryptocurrency.
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