Published: March 19th, 2021
Ben Delo, one of the co-founders of troubled cryptocurrency derivatives exchange BitMEX, has surrendered to American law enforcement after a warrant was issued for his arrest.
Delo, a UK national, had been accused of violating US federal anti-money laundering laws. As part of a negotiated surrender agreement with New York prosecutors, the Federal Bureau of Investigation, and US Customs, Delo flew from London to New York City, where he was arraigned via video hearing.
Delo pleaded not guilty at the hearing to charges that he failed to set up an anti-money laundering (AML) program at the exchange required by US law and denied accusations that he conspired to violate the US Bank Secrecy Act. Delo was given bail and allowed to return to the UK to await trial after posting a USD 20 million bond.
A spokesperson for Delo told Bloomberg that the charges against him are ‘untrue and represent over-reach by the American authorities,’ Delo intends to defend himself vigorously against the charges, the spokesman added, and clear his name in court.
Delo is the second BitMEX executive to find himself the dock for allegedly breaking US anti-money-laundering laws. Former CTO Samuel Reed was arrested in October and also released on bail after his arraignment hearing. He resigned from his position at BitMEX shortly after, along with former CEO Arthur Hayes.
Hayes is still ‘at large’ and being pursued by US authorities. Press reports say he has been negotiating a similar arrangement as Delo from his home in Singapore, where he moved after the original charges against the company were filed in October. In a hearing in February, the US Attorney’s office in New York announced that it expected Hayes would surrender in Hawaii, likely in early April.
The third BitMEX executive with an outstanding arrest warrant is Greg Dwyer, head of business development for the exchange. He took a leave of absence after charges were initially laid in October and is thought to be living in Bermuda.
According to court documents, Delo, Dwyer, Reed and Hayes allowed BitMEX customers to open trades on the exchange without having to prove their identity. Failure to gather ID data meant the company ‘made itself available as a money-laundering vehicle. Despite numerous alerts about potential violations, BitMEX failed to implement an AML program.
Despite the ongoing controversy, BitMEX has held onto its popularity as an options exchange. Numbers from Grayscale suggest it saw some USD 6.3 billion in trading volume the 48 hours following Delo’s surrender, five times more than nearest competitor Kraken.
Bloomberg is also reporting that BitMEX CEO Arthur Hayes may surrender to US law enforcement in early April.
Hayes and his co-defendants were charged in October with ‘wilfully failing to establish the required anti-money laundering ('AML') program’ for BitMEX during his tenure as chief executive.
The New York US Attorney’s office said that it had discussed a surrender date of April 6, 2021, in Hawaii for Hayes, where he would appear before a judge via video conference.
If Hayes surrenders, that will leave BitMEX ex-CTO Greg Dwyer the last of the four defendants to be at large. In a statement this week, US attorney Jessica Greenwood said that her office has recently been in discussions with Dyer’s lawyer about a potential court appearance. She said a voluntary surrender might not be possible, so the US has begun extradition proceedings in Bermuda, where Dwyer is thought to be living.
In December, BitMex’s holding company 100x announced that Alexander Höptner, the former executive of Germany’s second-largest stock exchange, Börse Stuttgart, had been appointed the exchange’s new CEO.
“Crypto is developing so quickly as a market,” Höptner told Bloomberg, adding that growing interest by institutional investors, expanding adoption, and regulatory changes have made the mushrooming industry compelling, even for a ‘traditional exchange executive.’
However, it's worth noting that Höptner’s not entirely new to the crypto space. At Börse Stuttgart, he headed-up the exchange’s digital asset trading arm and led the launch of several Bitcoin exchange-traded funds (ETF’s) in his time there.
Höptner’s appointment comes at a crucial time for BitMEX, which has held up well in the face of controversy but could yet fall victim to negative sentiment. Its owners hope new leadership will help avert that.
A high-profile lawsuit launched by two of BitMEX’s angel investors, Elfio Guido Capone and Frank Amato, came to a close in January.
Both had sued the troubled crypto exchange in an attempt to recoup what they claimed was an initial investment plus damages with over USD 500 million. In court documents, they claimed to have been early investors in BitMEX after ex-CEO Hayes convinced them to invest in the fledgeling venture back in 2014.
A combined USD 50,000 investment was allegedly agreed for conversion to equity at a USD 10 million post-money valuation. Both claimed that Hayes gave assurances their investments would entitle them to BitMEX equity, assurances that they now say were either knowingly false or made recklessly in an attempt to convince both investors to part with their money.
They also accuse Hayes of engaging in wilful ‘procrastination’ in terms of addressing their claims and of providing false information to investors.
In court documents, it's alleged that Hayes confirmed to Amato in writing that a valuation of USD 10 million for BitMEX had been established and that he would share a 10 per cent holding in the exchange, while he and his two other co-founders held onto 90 per cent.
Despite its legal woes, BitMEX has held onto its status as one of the best-loved exchanges for crypto options. Data from Nomics says BitMEX reported more than USD 126 billion in volume over the last month, only slightly less than Coinbase Pro and twice as much as competitors exchange Kraken.