BREAKING: Arthur Hayes indicted by US government, BitMEX shutting down?

What's up, everyone? Welcome to our breaking news livestream. Today we are going to be covering the most recent news about Arthur Hayes and his three compatriots, Benjamin Dello, Samuel Reed and Gregory Dwyer of Bitmex, who have been indicted by the US Government, the cftc. My name is Jackson and my colleague here is Giovanni.

We are here to cover the indictment that hit Bitmex, one of the biggest derivative exchanges in the world, in terms of cryptocurrency and his colleagues who were also hit by this indictment. The Commission believes that Bitmex has offered illegal leverage trading services to retail traders since its inception in 2014. Basically, it's about money laundering. They are suspected to have facilitated money laundering by not respecting KYC and AML procedures in the U.S. so basically, at the moment, Hayes, the CEO of Bitmex, is still at large, together with his associates, except Reed, who got arrested this morning in Massachusetts. So basically, besides the indictment by the Commodity Futures Trading Commission, the group of people are facing some criminal charges for violating and conspiring to violate the Bank Secrecy Act. So if convicted, these executives could face a maximum of five years in prison and $250,000 of fine. So pretty serious charges. And yeah, it's a pretty big deal because Bitfinex is among the largest crypto exchanges in the world. It's the second largest crypto derivative exchange after Binance.

So we'd love to hear what you guys are thinking about all this going down. So let us know your thoughts in the chat. And here with us today, we have our editor, Colin Post, who has been covering this breaking news story, and he is here to share us more information about what's going on. Thank you for joining us, Colm.

Absolutely. Jackson, how's it going?

It's going great. So Giovanni did a nice little intro there about the main outline of the case. Could you take us a level or two deeper and really explain what's going on here?

Yeah, absolutely. So what's really interesting about this case, several things, actually. So you have both the CFTC and the Department of Justice operational here. So the CFTC is the commodities regulator within the US So they are responsible for ensuring that American markets are free of market manipulation and deceptive practices. And if you are going to offer derivatives trading in the United States on commodities like Bitcoin, you need to register with the cftc. They are pursuing Bitmex on the basis that they have failed to register. The DOJ is looking at this from a criminal point of view that Bitmex not only did not have An AML procedure in place. But they knowingly offered American customers their services and knowingly refuse to abide by the law. And this happened over a matter of the past five years with the, with the CFTC's concerns. It's not a criminal charge. So the CFTC's concerns are, would be stopping them from operating within the country. Doj, they're threatening to put all the operators of Bitmex in jail.

So the fine and the, so the fine and the jail time charges, those are coming from the Department of Justice. Correct. And the CFTC charges would just stop Bitmex from operating in the us.

That would also be a fine as well. And they are trying to get, they're trying to get all the investors their money back. So Bitmex from its side of things, has always claimed that it is not operating in the United States, that it doesn't service American customers. And the CFTC and the DOJ are basically saying that they don't buy it. And this dates back to an earlier court case. So there's a civil case that BMA filed against Bitmex back in May and it is basically a continuation of the same allegations. Now the CFTC and the DOJ stepping in. This is a colossal deal for one of the giants of leverage trading in crypto.

Yeah. And it would be actually interesting to know how much chances there are that the whole crypto exchange is shutting down because of those charges.

So they actually, less than an hour ago, Bimx responded in a blog post saying that they're going to continue operating as normal. They are denying the charges, of course, but still three of the four people named in the DOJ's complaint remain at large and they've, I mean, Arthur Hayes has, you know, maintained a famously jet set lifestyle for the past several years. Social media is full of, you know, posts from all over the place. Nobody knows exactly where he is.

Yeah, and apparently Arthur Hayes was also bragging about his potential capabilities to evade taxes by corrupting officials in the Seychelles. Like he said that in the Seychelles it's much easier to bribe officials by offering them coconuts or something like that. Right? Yeah.

So basically this is cropped up in both the earlier, the earlier case filed against them and now this from the doj. Arthur Hayes was not subtle about his attitude towards skirting regulation. This is probably part of why he's in particular trouble. There are a lot of exchanges that have offered services that might not be able to operate in the us. There are people who are clever enough with technology to access services from the US that they shouldn't be able to. But consequently, regulators have tried to prioritize the most egregious examples. So, I mean, Arthur Hayes saying things like they've organized into Seychelles because you can pride the officials with coconuts. That's potentially part of why this action is taking place.

Anyway, he was attracting a lot of attention to himself by this statements, I guess.

Yeah. And again, this is a firm that was offering 100 times leverage, which, I mean, in the U.S. there's no equivalent, certainly in health crypto.

Yeah. And also the FBI said that the defendants will soon learn the price of their alleged crimes will not be paid with tropical fruits, but rather could result in fines, restitution, federal prison time. So pretty threatening allegation statements from the FBI.

You love when the lawyers have a sense of humor about these things. You know.

I understand that Bitmex recently had their official response to all of this. What was that again?

So they mentioned, in addition to saying that they would continue to operate as normal, he said, was that they had always tried to abide by all applicable US laws, as they were understood at the time. So this is probably going to be the shape of the case where BIMX is likely to. I'm not a prophet here, but likely to continue denying that they knowingly operated in the US that they knowingly violated the Bank Secrecy act, and admittedly they've been operational since 2014. Regulators have kind of traditionally shown a little bit of mercy to people in the early days of crypto for maybe not knowing. But what the DOJ complaint says is that they had made contact back in 2015 and that these people were fully aware that what they were doing was against the rules and that regulators were aware of it and continued to operate. Anyway.

There has been a bit of FUD flying around saying that Bitmex is shutting down and stuff like that. It seems that Bitmex will actually not be shutting down. One indicator of this is they usually have one withdrawal window per day. So there's one window during the day where you can withdraw your money from the exchange platform. But today they offered an exception to that. So they had a second withdrawal window to kind of say that like, we're not here to scam anyone, we're not going to take your money and you're allowed to take your deposits out of the platform if you wish. So there is this. They are putting that foot forward to say, okay, we're not trying to scam people and we're still remaining operational. So there is that, but we'll see we'll see how it plays out. I mean, do you, do you know if the CFTC or the, or any like, US government body would be able to actually freeze the assets on the Bitmex platform?

That's a good question. That is a very good question. Unlikely, not without. I would not say that's going to happen in the immediate future, but again, not a profit over here. Yeah.

Because actually we have a very interesting comment by Mike Novogratz who commented on the issue on Twitter lately. He said that crypto friend, let's remember that you are innocent until proven guilty. It's a cornerstone of American justice. I have no insights into the case, but I wish Arthur Hayes. Well, so basically the point is these guys got indicted, they were charged with criminal charges, but they were not proven guilty yet, as far as I understand. So there is still room for them to defend themselves and to try to prove themselves not guilty, I guess.

Yeah, absolutely. And I mean, we'll see who comes out of the woodwork. They only have one of the executives in custody.

But also I would like to ask you, why do you think it took so long for the US authorities to go after the exchange, even though it has been doing this kind of stuff apparently since its inception?

Yeah, that's a good point. They've definitely gotten better equipped at tracing illicit cryptocurrency transactions over the years. And this is. We've seen a lot of this stuff crop up even in the past couple of months. You know, the CFTC has just gotten more on its game. The Department of Justice, certainly they not two months ago, there was a huge bust with the doj. The Department of Homeland Security were involved in breaking up a network of terrorist funding. But even in that case, some of the evidence in that case dated back years. So it takes a while to gather the necessary evidence for them. And also in the case of Bitmex, this does in many ways derive from that lawsuit that was filed in May. There are a lot of similarities. In that case, the allegations were money laundering, racketeering, basically saying that Bitmex is deliberately designed to be able to facilitate illegal transfers of wealth. So with that basis and the fact that that case has already progressed so far, more evidence has emerged, more arguments have emerged, and more understanding of how Bitmex operates came to light.

And Mike Novogratz's comment on that was not particularly negative. But on the other, I mean, this whole case has brought a lot of people out of woodwork and some have been putting a negative spin on, including Nouriel Roubini. Who's saying that? He predicted that Bitmex and Arthur Hayes would go down since July of 2019 in his book the Great Crypto Heist. So he's expecting more heads to roll. And I think if I'm not wrong, Roubini and Arthur Hayes have some historical, have had some historical clashes. So it'll be interesting to see how everything plays out.

Yeah, I mean, he's typically such a ray of sunshine, obviously, that Rubini, But Bitmex has been historically a controversial entity within crypto. Even great defenders of crypto have their qualms with Bitmex. So we will definitely see what happens.

All right, thanks, Colin. Do you have any last points you'd like to share?

I mean, I am staying tuned to see what happens.

Yeah. And keep an eye out for Cointelegraph's coverage on this. We will be publishing more in depth video on the whole case, getting opinions from lawyers and a look at the markets and how this is all going to affect the markets. So you can stay tuned for that tomorrow.

Oh, yeah, because by the way, the market crashed abruptly right after the news of BitMEX from 10,900 to 10,500. So $400 crash. But it kind of started recovering partially since then. So it cleared like this abrupt crash that recover very quickly afterwards.

All right, great. So thanks, Colin, thanks for talking to us.

Thank you. Appreciate you.

Yeah, see you another time. Now we have another guest coming on who is a representative from BitFlyer. This is an exchange with over 2 point, I think 1.5, 2.5 million users. It's the only exchange to be regulated.

In Asia, Europe, Japan, Europe and the us.

And the US Yeah. So we have a representative from that exchange who will be with us shortly, Joel Edgerton, who is the COO of Bitfire usa. Joel, can you hear us?

Yes, I can hear you fine. Awesome.

So we have some questions for you, especially since you are the CEO of a crypto exchange. So what is your whole perspective on these indictments and charges that are going down against Bitmex?

Yeah, it's not surprising in the least. I think so. I came from a traditional finance background. The US government has always been very strict on kyc, AML and sanctions. So if you look in the indictments, they are also hit with sanctions. And that in particular the US is very sensitive to. So I'm not surprised at all. Particularly, as you mentioned earlier, the attitude of Bitmex to the US Government after they've been specifically warned by the US Government to basically say, no, we're just going to ignore you. Yeah, that didn't go over too well. So they're being held up as an example of what happens.

Do you think that more of these actions are going to be taken by the government to to crack down on other crypto exchanges in the US it's definitely possible.

Yeah, yeah, no, it's definitely possible. I mean the US government moves slow, but when it comes, as you can see here, it comes with a heavy hammer. They've in the past with just traditional banks, they've levied multi billion dollar fines for these exact same type of things. So this is not something that they're playing around with. I think it will depend on the attitude and the reactions of the unregulated exchanges. If they clean up their act, maybe the US government will accept it. They're getting the behavior that they want to see. If they don't and they act like Bitmex and just thumb their nose at everything, no, they're going to get hit.

Do you think that Bitmex success in terms of being a the second largest derivative crypto exchange also depended on the fact that they were very lax in terms of AML and KYC procedure? Do you think that that's why they attracted so much trading on their platform?

I don't think that's the only reason. I mean, obviously to have a process that's as easy as possible to attract customers and attract assets does help you gain, but I mean you do have to have a real platform with real trading capabilities and add value to people that want to trade. I think what it does is it gives them an advantage over all of the regulated exchanges that have to play by the rules and have those extra costs associated with it and have that more difficult onboarding process. So compared to regulated exchange, yeah, they have a definite advantage.

What do you think is the significance of the CFTC getting involved at this particular point in time? And what kind of repercussions will this direct involvement have as we move forward?

I think it's quite interesting that the CFTC is involved in this, particularly right now. There's several bills in front of Congress where the CFTC is carving out its space to regulate cryptocurrencies. So I think there is a little bit of a political aspect to this where they're basically saying we are going to stake our claim to the crypto space and we're going to support the US laws and that gives them a stronger argument in front of Congress as well. So I think it's a very clear signal both to the unregulated exchanges, but also in the US in general that they want to claim this space.

Do you think this is a good thing for the industry overall.

Long term? Yeah, I think it's good. I think it's good to protect customers. I think it's good to have rules for engagement where everybody's on a level playing field. And that's not been the way it has been to date. We've had a group of people that have purposely avoided regulations, they've purposely avoided the extra costs associated with protecting customers. And they made a decision. Their decision was that they're not going to pay for a compliance cost and they will just pay fines whenever it comes. And I think that's part of why the Justice Department's move to add criminal charges is very important here. And because now the unregulated exchanges have to think, okay, wait a second, it's not just a cost of doing business anymore. My life is on the line here. I can lose my job, I can be thrown in jail, my livelihood is impacted. So they need to rethink their business model on this.

On the other hand, Roubini, like Nouriel Roubini, who criticized the Bitmex and the whole crypto sphere for being like a nest of scammers, says that unfortunately.

This.

Is what people associate cryptocurrency exchange with. So, like a fast way to get involved without much control, without much checking. Very fast, very easy, very comfortable. But then you have this. The flip side of the coin is like, of course, money laundering and stuff. So it's very difficult for crypto exchanges to gain credibility, to gain reputation, while still keeping faith to the spirit of cryptocurrency, which should be about not revealing too much of your own identity, like privacy. It's also important for the whole crypto ecosystem.

Yeah, I think Roubini shouldn't be throwing stones in a glass house. I mean, this is not the first time that charges of AML KYC violations have been done. Traditional banks have been hit hard in the past as well. So this is not something that's just for the crypto world. There are a lot of scams in finance, traditional finance, taking advantage of people. For thousands of years, finance has been around and for thousands of years people have been scamming each other out of their money. So this has nothing to do with crypto. Crypto has to grow up, right? We have to become mature and we have to take an attitude to protect our customers. If we want a long term business here, and that is what we want, we need to take the hard road and learn how to do these things properly. So it's not something that is just a scam in crypto. That's totally false. But we do need to learn and grow up.

Awesome.

Did you have something else? No, actually I had a question because you were talking before about the long term, that the involvement of the CFTC and the US Government could be positive for the long term growth of the crypto space. What about the short term? Do you see this as something that is also positive or do you see this as having more of we have to bite the bullet now in order to reap the benefits later?

I think short term it's going to be a mixed bag. Obviously everybody that has accounts at an unregulated exchange is going to be worried that the hammer is going to fall on them next. The people running those unregulated exchanges have to now worry about their business models and how that will work for the regulated exchanges. No, it doesn't really impact us too much. Maybe we even gain some customers from people trying to move over into the regulated space. But I mean, longer term, anything that helps us to protect our customers and build more trust in the industry I think is good for the industry.

Great. Well, thank you so much for joining us today, Joel. It's been a pleasure.

Thank you very much.

Take care.

Take care.

So guys, we have another guest coming right up, so don't go anywhere. It's going to be George Azaria, who is the CEO of Bequant. So we'll be getting another perspective from the leader of an exchange coming right your way. If you're enjoying the stream so far, please don't be afraid to hit that like button and subscribe to our channel so we can bring more awesome content to you guys. So let's get George in here straight away and we can get his perspective on everything that's going on. George, can you hear us?

Yeah. Hi guys. Good evening.

How are you doing, George?

Good, good. Interesting day. Good. Start of October.

Yeah, exactly. October 1st. BitMEX down. So what's your initial reaction to all of this?

No surprises. Honestly, it's been expected. I mean, funny thing is I went into a website and I saw this warning about the FCA commentary that happened a few months back. Basically prohibiting, you know, serving UK clients on BitMEX platform. And again, it's, you might, you might get away from the fca, but you're not going to get away from. Put it that way. Right. And, and if you keep ignoring regulators generally, that's not going to lead you anywhere. So yeah, and then again it's assigned to everybody in terms of, well the basic hygiene. You have to keep your, you have to know your customers, you have to play by the rules. And luckily in current state of the market we know what the rules are. So it's pretty crystal clear where you're going to get in trouble for what kind of activities. So as long as the industries is watching these rules and following them, you'll be all right. And Bitmex, I think they just got a bit greedy. That's my point of view.

It's funny that each one of you that came up to our show said that they are not surprised about what happened. It seems that Bitmex had a very.

Questionable reputation because of, they've been losing market share. That was a clear trend and frankly the, there hasn't been that much of a positive publicity lately and I guess, well, I guess this is the, this is the end my friend. You know the open interest has just looked it up, dropping 15% already. So the position started to get unwinded. So when we see the morning in Asia I think it's going to get accelerated because I think that's where they're getting most of their, most of their clients. And yeah, I think tomorrow is going to be a bit of a bloodbath. It's going to be a rocky day, very volatile. It's going to be a lot of arbitrage opportunities. It's good for the market. Seems like the situation is more or less controlled. At least the bitmax is saying that everything is fine, business as usual, guys, we're going to fight and so on. Well, you can fight but I think they're definitely going to lose the business.

So actually I'm curious to know what would you recommend to any customers of Bitmex at the moment? Like what's the most reasonable, sensible thing to do? If you have your money on Bitmex in a moment like this, what should you do?

Well the, well I mean the word of advice is wrong but being sensible as understanding the traders mentality, you have to manage your positions carefully as well. So any professional traders, they would definitely have accounts at competing exchanges and they will probably roll over, they will close their positions on Bitmex and roll them over. So that's where we're going to see a lot of arbitrage opportunities. But then there's going to be some, some of the traders, they will, they will still stop market making this exchange. So we can see sharp declines, could be a massive flash Crash kind of situation, localized. And that's, that's what you need to be very careful about. And then again, the sooner, I guess, the sooner you close your positions, the better. But again, if you're, if you have any high leverage, I would definitely recommend to decrease that to the minimum in order not to be liquidated. That's the rule of thumb. So de risk deleverage.

Yeah.

And actually we need to point out that Bitmex was offering huge amount of leverage, like up to 100x, which I guess it's not that common among crypto exchanges. Like, not all crypto exchanges offer this kind of huge leverage to their customers.

It's not just common, it's not a common sense, I would say, because 100x leverage is a pure gambling. I mean, with the volatility of the market, you cannot trade like that. So it's pure, it's a pure gambling. It's not a, not an instrument for professionals and it's not an instrument for the retail, it's an instrument for gamblers. That's it. And I mean, why would you need hundred x.

To go all in? You know, you have to follow the Wall street mantra.

Exactly.

The maximum I tried was 10x and it was already quite high for myself, so I wouldn't go that far.

And what happened?

Yes, you got some adrenaline. Yeah. Gio, right? You can get someone.

Yeah. And you were talking about the possible repercussions of this whole scenario on the market, especially tomorrow. But you also said that, that the market share of Bitmex has been declining. I mean, do you really think it still has enough money and volume to really impact the bitcoin market in a really significant way?

Well, it is still top, I believe, top three in terms of volumes in derivative contracts. And clearly there's a lot of players that are using Bitmex as one of the main liquidity sources. So the situation is. Yes, I mean, it's quite a fundamental change and I think it's what is going to change the mentality of the traders as well in terms of choosing your counterparty, choosing the exchanges that you trade on because the market has, you know, very short memory and you know, when exchanges go down or exchanges get hacked or something else happens, you need to be wary, you need to do your due diligence and yeah, then it's a Bitmax has been and a very influential player in the market with lots of, lots of volume and you know, so it's still quite significant. And again, if something happens on it, if it goes into a halt I think that would be very detrimental for sure.

And actually I'm interested to know because it seems that getting regulated in the US it's extremely difficult because seems that if bitmax didn't want to get regulated, it means that actually it costs money, it costs effort. So how.

I disagree. I do disagree, actually. It's, I mean, we've done the research on the US regulation. It didn't seem like an awfully complex process. It does take money, which Bitmex has an abundance. They claim they have top lawyers on staff and again, that's something that will save the money even during this process. So if they really wanted to, they would have gone. But I think they deliberately chose the strategy of being the sort of an underdog with very lax KYC rules and basically, you know, keep the music playing as you know, before somebody comes in and basically shuts the whole shot down. I think it's a reckless strategy. I think with their resources and their position in the market, they could have done much better, similar to what Binance had done. Registered US entity. And so there's definitely a manageable way of getting access to us. I mean you're. Again, if your derivatives platform might be a little bit more complex than a spot exchange, but even that, I mean, you can, you know, money can make, make things happen very quickly.

Great. Well, thank you so much for joining us today, George. It's been a real pleasure talking to you.

Thanks, George.

You're welcome. Thank you. Thank you guys. Thanks for having me.

Great. So, yeah, I've been, I've been, you know, looking over chat, seeing what everyone's thinking and a lot of people don't really seem too surprised by this whole fiasco that's been going down. But that is also to say that Arthur was quite a character and, and definitely was a central point of the crypto community. So in some respects he will be missed for his personality, but it seems that, that he is at the end of his run along with his four colleagues. And it remains to be seen what exactly will happen to bitmax. But for now, the Bitmex will remain operational.

Yeah, so I guess that's pretty much the roundup for this breaking news, right, Jackson?

Yep. So thank you all for coming out and joining the show. If you enjoyed the stream, please hit that like button and subscribe to our channel so we can bring more awesome content to you. And stay keep your eyes open on our channel because we'll be releasing a follow up video to this with more extensive coverage and deeper analysis of how this is all going to play out tomorrow or this weekend. So once again, thank you guys all for coming on. My name is Jackson.

And I'm Giovanni.

And have a great day.