Author: Alison E. Thompson

On February 24, 2022, two of three founders of an off-shore cryptocurrency derivatives exchange, the Bitcoin Mercantile Exchange or “BitMEX,” pled guilty to violating the Bank Secrecy Act (BSA) by failing to maintain an anti-money laundering program.  Pursuant to their respective plea agreements, defendants Arthur Hayes and Benjamin Delo each agreed to pay a $10 million criminal fine and face up to five years in prison.  The defendants’ guilty pleas were entered approximately one month before they were scheduled to stand trial in the United States District Court for the Southern District of New York.

Hayes and Delo – along with two other BitMEX executives – were indicted in October 2020 for evading U.S. anti-money laundering rules.  A Department of Justice (DOJ) press release announcing the charges detailed that BitMEX was required to register with the Commodity Futures Trading Commission (CFTC) and to establish an adequate anti-money laundering program because it solicited and serviced U.S. traders.  Despite these obligations, BitMEX had only nominal programs in place to combat money laundering which, according to DOJ, were “toothless or easily overridden to serve BitMEX’s bottom line goal of obtaining revenue through the U.S. market without regard to U.S. regulation.”

Continue reading “Cryptocurrency Exchange Founders Plead Guilty to Bank Secrecy Act Violations”

On February 14, 2022, the SEC announced charges against BlockFi Lending LLC – a New Jersey-based cryptocurrency lending platform – for failing to register its crypto lending product and violating the Investment Company Act of 1940.  BlockFi agreed to a settlement in which it will pay a $50 million penalty, cease unregistered offers and sales of its lending product, and attempt to bring its business in compliance with the Investment Company Act within sixty (60) days.  Additionally, BlockFi agreed to pay $50 million in fines to 32 states to settle similar charges.

BlockFi offered and sold to investors BlockFi Interest Accounts (“BIAs”), through which investors lent crypto assets to BlockFi and, in exchange, BlockFi promised variable monthly interest payments paid in cryptocurrency.  The SEC’s Order sets forth the Commission’s findings.  First, it concluded that the BIAs were securities because they were notes under Reeves v. Ernst & Young, 494 U.S. 56 (1990), and because they were sold as investment contracts under SEC v. W.J. Howey Co., 328 U.S. 293 (1946).  Second, the SEC found that BlockFi was engaged in an illegally unregistered securities offering.  Third, it found that BlockFi violated Sections 17(a)(2) and 17(a)(3) of the Securities Act by making materially false and misleading statements concerning its collateral practices and the risks associated with its lending activity.  Finally, the SEC determined that BlockFi was operating as an unregistered investment company.

Continue reading “BlockFi to Pay $100 Million Over Crypto Lending Platform”