Large fines – with the possibility of no imprisonment
A legal story that includes civil and criminal cases against Bitcoin Mercantile Exchange (BitMEX) entities and former individual owners-a large and well-known online trading platform dealing with futures contracts and other derivative products related to cryptocurrency values. See) Here, HereWhen Here) — Continue unabated.
Most recently, BitMEX co-founder and former CEO Arthur Hayes, a prominent leader in the cryptocurrency industry, settled civil proceedings at the CFTC and pleaded guilty to the criminal accusations filed by the DOJ. He is currently facing a criminal case decision scheduled for the end of this week. As we argue, Hayes and the government have very different views on his proper judgment.
These proceedings were publicly filed in October 2020 in the following cases: (1) The Commodity Futures Trading Commission (“CFTC”) has failed to register with CFTC and has committed various violations, alleging civil affairs against the entity operating the BitMEX trading platform and its three individual owners. Laws and regulations under the Commodity Exchange Act (“CEA”) that filed a lawsuit. (2) The Justice Department can maintain appropriate rebellion against three individual owners and another individual, including Haze, for violating the Bank Secrecy Act (“BSA”) and attempting to violate it. I was charged with not having it. Money laundering (“AML”) program.
The proceedings raised new legal issues regarding what would apply to participants in the cryptocurrency market, if there was a regulatory system. In addition, Hayes’ future ruling raises the question of whether crime is very novel and worthy of probation, despite the high costs in question.
CFTC consent order
May 5, 2022, The CFTC announced: It has entered Individual consent order with Hayes And other individual defendants.These consent orders will continue in August 2021 Consent order Between the Defendant of the BitMEX entity and the CFTC and the Financial Crimes Enforcement Network (“FinCEN”).
By agreement between the CFTC and the Substantial Defendant, BitMEX operates a facility that trades or processes swaps in the United States without being approved as a designated contract market (“DCM”) or swap execution facility (“SEF”). By doing so, it is alleged to have violated CEA. “). BitMEX has also become a CEA by acting as a futures committee merchant (“FCM”), accepting Bitcoin to marginize digital asset derivative transactions and acting as a counterpart to leveraged commodity trading without CFTC registration. It is alleged to have violated. In addition, BitMEX is alleged to have violated CFTC regulations because it was unable to implement the appropriate AML program. This was an FCM and had to be run under BSA. The substantive defendant was permanently suspended for further violations of the CEA. Substantive defendants were also ordered to pay regulatory agencies a total civil fine (“CMP”) of $ 100 million. In a criminal proceeding, Hayes funded one-third of the company’s settlement based on his one-third interest on BitMEX, further CFTC, explained below. ..
The May 5, 2022 Consent Order Between CFTC and Hayes, Hayes controlled BitMEX (along with other individual defendants), but Hayes was unable to implement and implement effective management to prevent or detect this practice. Was found to be liable for the same violations as the substantive defendant. Following the consent order, Hayes, like the substantive defendant, will provide a permanent injunction against CEA’s future breaches, including offering derivative products in the United States and operating swap facilities without initial approval from the CFTC. I agreed to the order. Hayes also personally agreed to pay $ 10 million in CMP. The consent orders between the CFTC and other individual defendants are substantially similar, including an individual $ 10 million CMP.
Meanwhile, February 24, 2022, Announced by the Ministry of Justice Hayes pleaded guilty to one offense that violated BSA. The indictment violates BSA’s 31USC §5318 (h) requirement to maintain an appropriate AML program, including the submission of suspicious activity reports (“SAR”) by certain financial institutions, including FCM. He charged Haze for attempting a breach. If necessary, implement the appropriate Know Your Customer (“KYC”) program.
The Haze decision was set on May 20, 2022. Both Hayes and the government have recently filed a memorandum of understanding. One count that violates BSA can be sentenced to up to five years’ imprisonment, but the parties have previously stipulated (in Hayes’s plea bargaining) the scope of Zone B sentencing guidelines, six months to twelve. Created a recommended guideline range for lunar imprisonment. You have the option of probation. Of course, the court reserves the discretion to decide the decision, regardless of the scope recommended by the guidelines.
Not surprisingly, the parties want a completely different sentence. On the one hand, Hayes’ lawyer went to court ( 65-page sentencing submission) Judgment of probation without house arrest, confinement to the community, or freedom to travel abroad (mainly to allow Hayes to seek immigration status in Singapore). Hayes’ lawyer cites his voluntary surrender, acceptance of responsibility, and regret for his actions, as well as a very low risk of recidivism, lack of criminal record, background achieved, and philanthropy. .. His lawyer also includes the novelty of the procedure, the fact that Hayes was navigating the emerging guidelines in the cryptocurrency market, and the fact that Hayes tried to implement some AML programs for BitMEX. Identify some “mitigation factors” Block US participants (despite recognized shortcomings) and take other corrective actions.
Finally, his lawyer has never argued that neither the CFTC nor the DOJ “BitMEX’s business practices are unfair to customers and other market participants.  Hayes has participated in or tolerated illegal transactions on the BitMEX Platform, including money laundering, sanctions violations, or other transaction-specific violations. Hayes also submitted 10 letters from his family, friends and colleagues in support of the ruling’s recommendations.
in contrast, The government asked The court said,[a] Serious imprisonment for more than 6 to 12 months, which is the scope of applicable sentencing guidelines to promote respect for the law and promote general deterrence. The government acknowledges Hayes’ “positive qualities,” but, like other white-collar defendants, claims that he “chosen to break the law for personal gain.” Above all, the government said that Hayes said[o]He ran a large offshore financial market that publicly declared the lack of an AML program, “quoting some examples of Hayes issuing a public statement ignoring CFTC regulations. Similarly, the government has “seen BitMEX repeatedly surface. [other, unrelated] “Crime investigation” seems to reflect “BitMEX was unable to implement the AML control”. In addition, the government described Hayes’ proposed efforts to implement the AML program as “fake,” and the $ 10 million fine he agreed to pay was, albeit considerable, illegal. Claims to be only a small part of the profits. The government claims that imprisonment is needed to send a message that such actions have consequences. The government is clearly currently requesting “significant” statements that go beyond the scope of the recommended guidelines, which are directly derived from the judicial transaction provisions of the parties entered into by the government. The financial scope of the crime was very important.
In addition to the parties, the US Probation Office also has the opportunity to recommend a ruling. In some cases, these recommendations are not published. However, as the government points out in the filing of the ruling, probation offices (such as Hayes) are, in this case, with two years of probation, based on the technical nature of the violation, the novel nature of the proceedings. We recommend non-detention sentences. Hayes has already agreed to pay the CFTC a $ 10 million civil penalty. Probation offices do not stand on the defense side every day.
The situation surrounding Hayes’ criminal accusations and convictions is unusual and certainly “messages” to crypto businesses that are actually doing business in the United States but have not obtained the appropriate regulatory approvals to do so. “Send”. However, Haze’s criminal case, coupled with his personal circumstances, may be so rare that he will not be sentenced to imprisonment. If so, the results do not necessarily apply to the following cases – by definition, they are not very unique.