(Bloomberg) — BitMEX co-founder Arthur Hayes should spend significantly more than a year in federal prison for failing to implement an anti-money-laundering program at the pioneering cryptocurrency exchange, US prosecutors said.
Hayes, 36, of Miami, a former Citigroup Inc. equities trader who co-founded BitMEX in 2014, pleaded guilty in February. He is scheduled to be sentenced May 20, and federal prosecutors on Thursday submitted their recommendation to US District Judge John Koeltl in Manhattan.
As part of Hayes’s plea deal, prosecutors had agreed that, under federal sentencing guidelines, his offense called for a prison term of six to 12 months. He also agreed to pay a $10 million fine. If convicted at trial, Hayes had faced as much as five years on each count of his October 2020 indictment.
But prosecutors argued late Thursday that a year in prison wasn’t enough, saying a more severe punishment is needed to make cryptocurrency platforms comply with the law.
“There is no question that this case has been extremely closely watched in the cryptocurrency industry,” prosecutors said in the filing. “Compliance by cryptocurrency platforms will be unattainable if their operators believe there are no meaningful repercussions for failing to comply with the law.”
The Hayes sentencing will come as regulators are increasing their scrutiny of digital-asset exchanges. US Securities and Exchange Chairman Gary Gensler said earlier this week that some platforms are shirking rules and may be betting against their own customers.
In their own sentencing recommendation, lawyers for Hayes asked Koeltl to impose no jail time and allow him to live abroad and travel freely, saying the case is a landmark that will help the US government prosecute financial crimes at cryptocurrency exchanges throughout the world. The Probation Office recommended that Hayes be sentenced to two years’ probation.
Prosecutors said Hayes’ sentencing request shows a prison sentence is needed to stop him from committing further crimes, because he has made it clear he continues to work in the cryptocurrency industry.
‘Real Cost’ to Crime
“Given his lengthy history of anti-regulatory and anti-law enforcement rhetoric and conduct in relation to cryptocurrency trading, there is an acute risk that he will return to criminal conduct if he does not perceive that there is a real cost to such criminal behavior,” the government said. “The defendant has paid a significant financial penalty, but it is only a small portion of the money he has made from operating BitMEX, and could easily be viewed as just a ‘cost of doing business’ outside the law.”
BitMEX initially denied the allegations, but a group of companies that operated the exchange in August agreed to pay $100 million to settle allegations they allowed illegal trades for years and violated rules requiring them to implement anti-money-laundering programs. BitMEX said in a statement that it has improved its compliance program in recent years and is pleased to put the investigations behind the company.
Hayes founded BitMEX with Benjamin Delo, a computer scientist who built high-frequency trading systems for JPMorgan Chase & Co., and Samuel Reed, a programmer specializing in fast web applications. The exchange was among the first to offer cryptocurrency derivatives, such as futures contracts that allow investors to make leveraged bets on the prices of different cryptocurrencies.
Delo and Reed also pleaded guilty earlier this year and agreed to pay $10 million each. Delo will be sentenced on June 15, Reed on July 13. Gregory Dwyer, the exchange’s first employee and former head of business development, is still fighting charges and is scheduled to go to trial in October.
The case is US v Hayes, 20-cr-500, US District Court, Southern District of New York.
(Updates with further excerpts from sentencing memo.)
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