Damian Williams, the United States Attorney for the Southern District of New York, announced that SAMUEL REED, one of three co-founders and a high-ranking executive of purportedly “off-shore” cryptocurrency derivatives exchange the Bitcoin Mercantile Exchange or “BitMEX,” pled guilty today to violating the Bank Secrecy Act (the “BSA”) by willfully failing to establish, implement, and maintain an anti-money laundering (“AML”) program at BitMEX. Under the terms of his plea agreement, REED agreed to separately pay a $10 million criminal fine representing pecuniary gain derived from the offense. REED pled guilty today before Chief U.S. District Judge Laura T. Swain, and will be sentenced by U.S. District Judge John G. Koeltl. The other two founders of BitMEX, Arthur Hayes and Benjamin Delo, previously pled guilty to the same offense in February 2022.
U.S. Attorney Damian Williams said: “Samuel Reed has now joined his co-founders, Arthur Hayes and Benjamin Delo, in admitting that they caused BitMEX to commit criminal violations of the anti-money laundering laws that govern financial institutions operating in the United States. As today’s guilty plea reflects, this Office will not permit cryptocurrency exchanges to operate as a shadow financial system that enables criminal actors to move their illicit proceeds without detection, and will vigorously investigate and prosecute the operators of such exchanges who deliberately flout U.S. law.”
According to the Indictment, public court filings, and statements made in court:[1]
REED, together with Arthur Hayes and Benjamin Delo, was one of the three co-founders and the long-time Chief Technology Officer of BitMEX. BitMEX is an online cryptocurrency derivatives exchange that, during the relevant time period, had U.S.-based operations and served thousands of U.S. customers, notwithstanding false representations to the contrary by the company. From at least September 2015, and continuing at least through the time of the Indictment in September 2020, REED willfully caused BitMEX to fail to establish and maintain an AML program, including a program for verifying the identify of BitMEX’s customers (or a “know your customer” or “KYC” program). As a result of its willful failure to implement AML and KYC programs, BitMEX was in effect a money laundering platform. For example, in about May 2018, REED was notified of allegations that BitMEX was being used to launder the proceeds of a cryptocurrency hack. Neither REED nor the company filed a suspicious activity report thereafter (indeed, BitMEX filed no suspicious activity reports at all between 2014 and September 2020), nor did BitMEX implement an AML or KYC program in response.
REED failed to institute AML or KYC programs at BitMEX despite closely following U.S. regulatory developments that made clear his legal obligation to do so if BitMEX operated in the United States, which it did. Despite repeatedly stating that BitMEX did not serve U.S. customers, including to individuals outside of BitMEX, REED knew that BitMEX’s purported withdrawal from the U.S. market in or about September 2015 was a sham, and that purported “controls” BitMEX put in place to prevent U.S. trading were an ineffective facade that did not, in fact, prevent users from accessing or trading on BitMEX from the United States. REED not only understood that U.S. customers continued to trade on BitMEX, but derived substantial profits from BitMEX as a result of U.S.-based trading.
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REED, 32, of Massachusetts, pled guilty to one count of violating the Bank Secrecy Act, which carries a maximum penalty of 5 years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Williams praised the outstanding investigative work of the FBI’s New York Money Laundering Investigation Squad, and thanked the attorneys and investigators at the Commodity Futures Trading Commission whose expertise and diligence were integral to the development of this investigation.
The prosecution is being handled by the Office’s Money Laundering and Transnational Criminal Enterprises Unit. Assistant U.S. Attorneys Jessica Greenwood, Samuel Raymond, and Thane Rehn are in charge of the prosecution.
[1] Two of REED’s co-defendants, Arthur Hayes and Benjamin Delo, pled guilty to violating the BSA in February 2022. As to REED’s remaining co-defendant, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
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Third Founder Of Cryptocurrency Exchange Pleads Guilty To Bank Secrecy Act Violations - Department of Justice
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