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Former BitMEX CEO Arthur Hayes is set to face sentencing in a federal courthouse in New York on Friday after pleading guilty in February to charges that he willfully failed to implement an anti-money laundering (AML) program at the exchange.
Prosecutors say the lack of know-your-customer (KYC) requirements at BitMEX allowed the company to thrive as a hotbed for criminal activity, including money laundering and sanctions evasion.
Hayes and his BitMEX co-founders, Samuel Reed and Ben Delo, as well as the company’s first employee, Gregory Dwyer, were initially charged in October 2020 with one count each of violating the Bank Secrecy Act (BSA), and another of conspiring to do so.
The four men, as well as BitMEX and other corporate entities, also faced civil suits from the Commodity Futures Trading Commission (CFTC) and the Financial Crimes Enforcement Network (FinCEN) that resulted in monetary penalties. BitMEX was ordered to pay the regulators $100 million; Hayes, Reed, and Delo had to fork over $10 million each.
The criminal charges carry a maximum sentence of five years each, but Hayes’ plea deal with prosecutors reduced the sentencing guidelines to between six and 12 months. He will be sentenced at the U.S. District Court for the Southern District in downtown Manhattan.
Hayes, a U.S. citizen and longtime resident of Singapore, surrendered to U.S. authorities in Hawaii last April, in a deal brokered between his lawyers and federal prosecutors. He was released on a $10 million bond secured by $1 million in cash and co-signed by his mother.
Two sides of the story
In a 65-page sentencing memo submitted to the court on May 4, Hayes’ lawyers asked the judge for leniency: probation, with no jail time or house arrest. They also requested that Hayes maintain his freedom to travel internationally and live abroad.
The submission also included a letter from his mother. Hayes’ lawyers argued that the former BitMEX CEO’s life had already been upended by the charges, which they said had “an extraordinary and well-publicized impact on Mr. Hayes’ personal life and on the BitMEX business that he co-founded.”
They also argued that Hayes is unlikely to reoffend.
The government, however, sees things differently. In a sentencing memo submitted on May 12, prosecutors asked the judge to hand down “a significant sentence of incarceration, above the applicable Sentencing Guidelines range of [six] to 12 months.”
Prosecutors say Hayes flaunted BitMEX’s disregard for KYC and AML guidelines, advertising the company’s lack of compliance on the exchanges’ website and in blog posts and media interviews.
This, prosecutors say, attracted “precisely the bad actors which the BSA intends to deter” – and earned Hayes over $100 million.
Hayes’ prominence in the crypto community and his penchant for talking to journalists about his worldview (and his glamorous life on the lam) seems to be a sore spot for prosecutors:
“The defendant chose to use his influence to promote a vision for the crypto industry that was in direct contradiction to the law, and calculated to undermine government regulations,” prosecutors wrote. “The defendant routinely criticized and mocked KYC requirements, and made it clear that he had no interest in complying with them.”