A judge in the US District Court for the Southern District of New York recently sentenced Gregory Dwyer, a high-ranking employee of one of the Bitcoin Mercantile Exchange (“BitMEX”), to one year of probation after pleading guilty to an anti-money laundering (“AML”) violation in August 2022. Dwyer, who was one of the first employees hired by BitMEX and once served as its Head of Business Development, was sentenced on November 16, 2022 after he pleaded guilty to one count of violating the Bank Secrecy Act (“BSA”). As part of his plea agreement, Dwyer agreed to pay a criminal fine of $150,000, which represents the financial gains obtained from the offense, while the other charges against Dwyer were dismissed.
In 2020, federal prosecutors charged Dwyer and BitMEX’s three co-founders – Benjamin Delo, Arthur Hayes, and Samuel Reed – with violating the BSA and conspiracy to violate the Act for taking affirmative steps, between 2015 and 2020, to avoid being subject to US laws but then marketing BitMEX’s services to US customers. BitMEX, one of the oldest and largest cryptocurrency derivatives exchanges, was incorporated in the Seychelles; however, according to the indictment, the company operated its online trading platform from an office in New York for a portion of the relevant time period and served thousands of US customers, making the company subject to the AML requirements in the BSA. According to the indictment, even after BitMEX was notified by US authorities that its platform may have been used to launder the proceeds of a cryptocurrency hack, BitMEX failed to maintain a “know your customer” or KYC program at the company or file any suspicious activity reports since its launch in 2014, as required by the BSA.
On August 10, 2021, the Financial Crimes Enforcement Network (FinCEn) and the Commodity Futures Trading Commission (CFTC) reached a global settlement with five companies responsible for operating BitMEX, which were ordered to pay a $100 million civil money penalty. On May 5, 2022, the three co-founders were each ordered to pay a $10 million monetary penalty and were enjoined from further violations of the Commodity Exchange Act and CFTC regulations. In addition, in early 2022, all three BitMEX co-founders pleaded guilty to BSA violations – Hayes and Delo in February 2022 and Reed in March 2022. Hayes, the former chief executive officer, was sentenced to 2 years’ probation; Delo, the former chief operating officer and chief strategy officer, received 30 months’ probation; and, Reed, the former chief technology officer, was sentenced to 18 months’ probation.