How BitMEX’s Legal Issues Fueled Its Renaissance

BitMEX is one of the cryptocurrency industry’s largest derivatives exchanges. The company enjoyed a profitable operation from its establishment years back, and it continued to thrive well into last year.

How BitMEX’s Legal Issues Fueled Its Renaissance

However, every budding company experiences a crucible. Some come through it looking better, while others crumble and fade. BitMEX appears to be committed to the former, and its efforts have been pretty impressive so far.

Regulators Come Calling

BitMEX’s problems began late last year, as many know. The company received a lawsuit from the Justice Department, which alleged that four of its top executives - Arthur Hayes, Ben Delo, Gregory Dwyer, and Samuel Reed - had targeted American traders. This is despite the company not having clearance to operate in the United States. The Justice Department’s suit also alleged that BitMEX had been working without implementing anti-money laundering (AML) procedures and know-your-customer (KYC) frameworks.

Soon after, the Commodity Futures Trading Commission (CFTC) also charged BitMEX. In a complaint with the Southern District of New York, the financial watchdog alleged that the exchange had offered illegal leverage to traders to the tune of $1 trillion since its inception.

The CFTC also named several BitMEX affiliates in the suit. These include the aforementioned executives also HDR Global Services (Bermuda) Limited (BitMEX), ABS Global Trading Limited, HRD Global Trading Limited, Shine Effort Inc., and 100x Holding Limited. The agency sought disgorgement, civil penalties, permanent trading bans, and injunctions against any possible future violations in its suit.

BitMEX’s Long Road to Redemption Begins

Ever since the charges became public, BitMEX has been working significantly to clear its name and get on the right path. Most laudable has been the company’s commitment to cut ties with anyone involved in the suit, no matter who they are.

In the days following the suits, 100x Group - one of BitMEX’s operators - announced that it had relieved three of the exchange’s founders of their executive roles. Hayes, who was BitMEX’s CEO, was fired and relieved of his position on its board. Dwyer - the company’s Head of Business Development - took an indefinite leave of absence. Reed and Delo were also let go.

From there, the exchange also overhauled its customer identification processes. Last November, BitMEX announced that it had partnered with Eventus Systems, a compliance and software firm, to optimize its AML transaction and trade surveillance systems.

Per the announcement, BitMEX will integrate Eventus’ Validus technology into its AML processes and trade surveillance systems to ensure that traders can work safely and conveniently. The move will also help the exchange easily take out bad actors and malicious traders from its service.

The Journey Continues in 2021

This year, the exchange has continued its remediation efforts as it looks to keep customers and satisfy regulators. Last month, the embattled exchange published a blog post advertising its work with Chainalysis - the industry’s foremost analytics and security services firm. As the blog post claimed, BitMEX was looking to investigate and curb all illegal transactions on its platform, and working with Chainalysis yielded significant results.

BitMEX also announced in January that it had completed a mandatory user verification program, meaning that every customer on its platform was verified. As part of the process, the exchange had closed all open trading positions held by unverified traders. So, everyone on its platform is accounted for.

In its latest move, BitMEX announced this month that it was hoping to improve compliance with the Financial Action Task Force Travel Rule (FATF). The rule, introduced in 2019, looks to guide crypto-holding companies on managing and dealing with transaction data. However, as BitMEX’s blog post explained, the exchange also hopes to effectively manage additional data that might not be related to transactions.

Malcolm Wright, the compliance chief at 100x Group, said in an interview that they had compiled the rules following in-depth conversations with several crypto industry insiders. The rules will be encompassing, touching aspects such as information dissemination, data transmission, and data storage.

Too Little, Too Late?

The question now is whether BitMEX’s remediation efforts will truly sway the regulators and government agencies looking to punish it. For that, it’s still too early to say. For one, it’s worth noting that BitMEX has been looking to revamp its identity verification procedures long before the CFTC and Justice Department came for it.

At the same time, there has been substantial proof that the exchange did house American traders even despite not having clearance to operate in the country. That alone will put the company - as well as affiliates and previous executives - in a ton of trouble.

While these efforts at remediating its position have been impressive, market sentiments don’t entirely sway regulators - especially when they pick your trail and are looking to prosecute.

Beyond the timing, BitMEX’s efforts have also affected its standing in the market. At press time, the exchange ranks 9th on CoinMarketCap's list of the best derivatives exchanges. Before the lawsuits from the Justice Department and CFTC, the exchange held the top spot.

BitMEX has a long way to go to convince users to return and possibly sway its plaintiffs to drop their suits against it. However, as far as turning a new leaf goes, its efforts over the past few months have been impressive.

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