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Arthur Hayes - the man who founded one of the most successful exchanges, introduced the trend of leverage exceeding 3x, and paid the price for mocking the KYC system and refusing to comply with the rules dictated by the USA.
Arthur Hayes - the man who founded one of the most successful exchanges, introduced the trend of leverage exceeding 3x, and paid the price for mocking the KYC system and refusing to comply with the rules dictated by the USA.
Full name: Arthur Hayes.
Date of birth: 1985.
Place of birth: Detroit, Michigan.
Parents: His father worked at a factory, and his mother was a manager at General Motors, typical representatives of the middle class in the USA.
Arthur spent his childhood shuttling between Detroit and Buffalo as his mother, Barbara, did everything possible to get him into the elite private school Nichols School.
After graduating from Nichols School in 2004, Hayes managed to get accepted into the Wharton School of the University of Pennsylvania.
After successfully completing university, in 2008, he obtained a Bachelor's degree in Economics and Finance.
In the same year, Arthur moved to Hong Kong for an internship at Deutsche Bank. There, he worked as a trader in synthetic equities and served as a market maker for Deutsche Bank's ETFs.
Deutsche Bank is Germany's largest financial conglomerate in terms of employees and assets.
After returning home, he enrolled in the Deutsche Bank graduate program, which provided him with an opportunity to go to London.
Later, Arthur got a job at the same bank in Hong Kong, but at that time, the bank was facing significant financial losses amid the economic crisis and initiated massive layoffs, resulting in 22-year-old Arthur earning only half of what he had expected.
He stayed in this position for a while just to survive.
Later, in 2011, he joined Citigroup.
Citigroup is one of the largest international financial conglomerates.
It is part of the "big four" banks in the United States, along with Bank of America, JPMorgan Chase, and Wells Fargo.
The bank manages assets with a total value of over $1.8 trillion.
Citigroup is the primary dealer of U.S. Treasury securities.
In his new role at the company, Hayes became a Delta One trader and served as the head trader for Asian ETF offerings at Citi, as well as traded index futures, index swaps, and customized baskets.
After 2 years, he resigned from Citi and ventured into freelancing.
After leaving Citigroup, Arthur became interested in investing in Bitcoin ($BTC), which he first learned about in April of the same year. Initially, he engaged in arbitrage between different spot exchanges and Bitcoin derivatives. With experience in this field, Hayes realized the need for Bitcoin derivatives trading.
Taking this idea into action, in January 2014, he started working on BitMEX. This trading platform serves as a platform for trading Bitcoin derivatives ($BTC). His partners in creating the BitMEX exchange were Ben Del, a computer scientist from Oxford, and Samuel Reed, an American programmer.
Before working on BitMEX, Ben Del developed high-frequency trading systems for JPMorgan Chase, and Samuel Reed specialized in rapid web application development. After 11 months of development, they launched the BitMEX trading platform, which has since become the most popular derivatives exchange for retail investors.
During the first year after its launch, the cryptocurrency exchange BitMEX did not enjoy significant popularity, and the income from trading fees barely covered the server expenses. In October 2015, Hayes decided to make a radical change to BitMEX's operation by increasing the credit leverage limit from 3x to 100x. And this change proved immensely beneficial for the company, as trading on the platform suddenly came to life!
"Trading without leverage is like driving a Lamborghini in first gear: you know it's safer, but that's not why you bought it," Hayes described the innovation in the BitMEX blog.
As the cryptocurrency industry experienced a boom, this change greatly helped BitMEX.
In 2017, the company had to expand and hire 30 new employees to cope with the surge in activity.
By 2018, BitMEX had become a trading platform for significant transactions with large sums: the daily trading volume could reach several billion dollars.
The co-founders of the exchange had different attitudes towards the success and sudden change in financial status. For instance, Reid preferred to stay low-key and, despite being a billionaire, continued to use public transportation and lead an unassuming lifestyle. On the other hand, Hayes didn't mind showcasing his achievements and preferred to play the role of a financial nonconformist.
During the summer of 2019, astronomical amounts were passing through BitMEX daily. In late June, the company announced a new record: the daily transaction volume on the platform was estimated at $16 billion.
On June 29, 2019, Arthur published the following tweet: "$1 trillion in trades within a year, the statistics don't lie. BitMEX is not something to joke about. Nouriel, see you on Wednesday."
Nouriel Roubini, an economics professor from New York University and a staunch opponent of BitMEX, was the target of his tweet.
In July 2019, they met at the Asian Blockchain Summit and engaged in a verbal duel on the forum's stage, later dubbed "The Tangle in Taipei".
Roubini accused Hayes and BitMEX of regulatory evasion and fraud, claiming that the exchange's creators profited from fees and maintained a liquidation fund using assets from bankrupt traders.
Responding to a question about choosing the place of registration, Hayes said that the only difference between American and Seychelles authorities was that the former were more expensive to bribe. When asked how much Seychelles authorities cost, he replied, "One coconut."
During his speech, Arthur Hayes displayed extreme self-assurance and showed clear disdain for authorities. Perhaps, this behavior contributed to his self-sabotage.
A few weeks after the summit, Roubini published an article titled "The Great Crypto Heist." In it, he drew attention to the potential dangers of offshore exchanges and their systematic violations of laws, with BitMEX being the primary target.
Roubini accused the exchange of being interested in its clients losing money and alleged that the company used internal trading desks to front-run traders' actions and profit from liquidations.
In the fall of 2020, the U.S. Commodity Futures Trading Commission (CFTC) filed a civil lawsuit against BitMEX and its founders for operating an unregistered trading platform and for non-compliance with the Bank Secrecy Act, Know Your Customer (KYC), and Anti-Money Laundering (AML) requirements.
KYC stands for "Know Your Customer," a procedure for verifying the identity of users.
AML stands for "Anti-Money Laundering," which is the prevention of money laundering activities.
Arthur Hayes, along with Samuel Reed, Ben Delo, and Greg Dwyer, were also accused of conspiracy and intentional evasion of establishing, implementing, and maintaining an Anti-Money Laundering (AML) policy. Criminal charges were brought against Hayes and his colleagues, with each of them facing up to five years of imprisonment.
According to the lawyer, the accusations typically involve evidence of criminal activities such as fraud, credit card theft, terrorism financing, etc. However, in the case of the lawsuit against BitMEX, there was no such evidence. Laurel Loomis Rimon believes that this action by the U.S. authorities is a message to the entire crypto community: "You must understand that this industry falls under our jurisdiction."
In reality, U.S. law does not prohibit unregistered exchanges like BitMEX from selling leveraged contracts to U.S. retail clients. However, according to the law, such contracts must be settled within 28 days. One of the most popular products of the exchange, the perpetual swap, has no expiration date, allowing traders to keep positions open for an indefinite period. Therefore, the financial instruments offered by BitMEX violate this requirement.
In February, he pleaded guilty to intentionally failing to implement an Anti-Money Laundering (AML) program by not introducing a Know Your Customer (KYC) system, which allowed unverified users to conduct tens and hundreds of millions of dollars through the exchange.
On May 20, 2022, in a federal court in New York, a verdict was reached in the case of Arthur Hayes, the former CEO of the cryptocurrency exchange BitMEX. Hayes was sentenced to 2 years of probation and 6 months of home confinement. BitMEX was ordered to pay $100,000,000 to regulatory authorities. Hayes, Reed, and Delo were each fined more than $10,000,000.
"The defendant chose to use his influence to promote a vision of the crypto industry that directly contradicted the law and aimed to undermine government regulations. He regularly criticized and ridiculed KYC requirements and made it clear that he was not interested in complying with them," prosecutors said.
Full name: Arthur Hayes.
Date of birth: 1985.
Place of birth: Detroit, Michigan.
Parents: His father worked at a factory, and his mother was a manager at General Motors, typical representatives of the middle class in the USA.
Arthur spent his childhood shuttling between Detroit and Buffalo as his mother, Barbara, did everything possible to get him into the elite private school Nichols School.
After graduating from Nichols School in 2004, Hayes managed to get accepted into the Wharton School of the University of Pennsylvania.
After successfully completing university, in 2008, he obtained a Bachelor's degree in Economics and Finance.
In the same year, Arthur moved to Hong Kong for an internship at Deutsche Bank. There, he worked as a trader in synthetic equities and served as a market maker for Deutsche Bank's ETFs.
Deutsche Bank is Germany's largest financial conglomerate in terms of employees and assets.
After returning home, he enrolled in the Deutsche Bank graduate program, which provided him with an opportunity to go to London.
Later, Arthur got a job at the same bank in Hong Kong, but at that time, the bank was facing significant financial losses amid the economic crisis and initiated massive layoffs, resulting in 22-year-old Arthur earning only half of what he had expected.
He stayed in this position for a while just to survive.
Later, in 2011, he joined Citigroup.
Citigroup is one of the largest international financial conglomerates.
It is part of the "big four" banks in the United States, along with Bank of America, JPMorgan Chase, and Wells Fargo.
The bank manages assets with a total value of over $1.8 trillion.
Citigroup is the primary dealer of U.S. Treasury securities.
In his new role at the company, Hayes became a Delta One trader and served as the head trader for Asian ETF offerings at Citi, as well as traded index futures, index swaps, and customized baskets.
After 2 years, he resigned from Citi and ventured into freelancing.
After leaving Citigroup, Arthur became interested in investing in Bitcoin ($BTC), which he first learned about in April of the same year. Initially, he engaged in arbitrage between different spot exchanges and Bitcoin derivatives. With experience in this field, Hayes realized the need for Bitcoin derivatives trading.
Taking this idea into action, in January 2014, he started working on BitMEX. This trading platform serves as a platform for trading Bitcoin derivatives ($BTC). His partners in creating the BitMEX exchange were Ben Del, a computer scientist from Oxford, and Samuel Reed, an American programmer.
Before working on BitMEX, Ben Del developed high-frequency trading systems for JPMorgan Chase, and Samuel Reed specialized in rapid web application development. After 11 months of development, they launched the BitMEX trading platform, which has since become the most popular derivatives exchange for retail investors.
During the first year after its launch, the cryptocurrency exchange BitMEX did not enjoy significant popularity, and the income from trading fees barely covered the server expenses. In October 2015, Hayes decided to make a radical change to BitMEX's operation by increasing the credit leverage limit from 3x to 100x. And this change proved immensely beneficial for the company, as trading on the platform suddenly came to life!
"Trading without leverage is like driving a Lamborghini in first gear: you know it's safer, but that's not why you bought it," Hayes described the innovation in the BitMEX blog.
As the cryptocurrency industry experienced a boom, this change greatly helped BitMEX.
In 2017, the company had to expand and hire 30 new employees to cope with the surge in activity.
By 2018, BitMEX had become a trading platform for significant transactions with large sums: the daily trading volume could reach several billion dollars.
The co-founders of the exchange had different attitudes towards the success and sudden change in financial status. For instance, Reid preferred to stay low-key and, despite being a billionaire, continued to use public transportation and lead an unassuming lifestyle. On the other hand, Hayes didn't mind showcasing his achievements and preferred to play the role of a financial nonconformist.
During the summer of 2019, astronomical amounts were passing through BitMEX daily. In late June, the company announced a new record: the daily transaction volume on the platform was estimated at $16 billion.
On June 29, 2019, Arthur published the following tweet: "$1 trillion in trades within a year, the statistics don't lie. BitMEX is not something to joke about. Nouriel, see you on Wednesday."
Nouriel Roubini, an economics professor from New York University and a staunch opponent of BitMEX, was the target of his tweet.
In July 2019, they met at the Asian Blockchain Summit and engaged in a verbal duel on the forum's stage, later dubbed "The Tangle in Taipei".
Roubini accused Hayes and BitMEX of regulatory evasion and fraud, claiming that the exchange's creators profited from fees and maintained a liquidation fund using assets from bankrupt traders.
Responding to a question about choosing the place of registration, Hayes said that the only difference between American and Seychelles authorities was that the former were more expensive to bribe. When asked how much Seychelles authorities cost, he replied, "One coconut."
During his speech, Arthur Hayes displayed extreme self-assurance and showed clear disdain for authorities. Perhaps, this behavior contributed to his self-sabotage.
A few weeks after the summit, Roubini published an article titled "The Great Crypto Heist." In it, he drew attention to the potential dangers of offshore exchanges and their systematic violations of laws, with BitMEX being the primary target.
Roubini accused the exchange of being interested in its clients losing money and alleged that the company used internal trading desks to front-run traders' actions and profit from liquidations.
In the fall of 2020, the U.S. Commodity Futures Trading Commission (CFTC) filed a civil lawsuit against BitMEX and its founders for operating an unregistered trading platform and for non-compliance with the Bank Secrecy Act, Know Your Customer (KYC), and Anti-Money Laundering (AML) requirements.
KYC stands for "Know Your Customer," a procedure for verifying the identity of users.
AML stands for "Anti-Money Laundering," which is the prevention of money laundering activities.
Arthur Hayes, along with Samuel Reed, Ben Delo, and Greg Dwyer, were also accused of conspiracy and intentional evasion of establishing, implementing, and maintaining an Anti-Money Laundering (AML) policy. Criminal charges were brought against Hayes and his colleagues, with each of them facing up to five years of imprisonment.
According to the lawyer, the accusations typically involve evidence of criminal activities such as fraud, credit card theft, terrorism financing, etc. However, in the case of the lawsuit against BitMEX, there was no such evidence. Laurel Loomis Rimon believes that this action by the U.S. authorities is a message to the entire crypto community: "You must understand that this industry falls under our jurisdiction."
In reality, U.S. law does not prohibit unregistered exchanges like BitMEX from selling leveraged contracts to U.S. retail clients. However, according to the law, such contracts must be settled within 28 days. One of the most popular products of the exchange, the perpetual swap, has no expiration date, allowing traders to keep positions open for an indefinite period. Therefore, the financial instruments offered by BitMEX violate this requirement.
In February, he pleaded guilty to intentionally failing to implement an Anti-Money Laundering (AML) program by not introducing a Know Your Customer (KYC) system, which allowed unverified users to conduct tens and hundreds of millions of dollars through the exchange.
On May 20, 2022, in a federal court in New York, a verdict was reached in the case of Arthur Hayes, the former CEO of the cryptocurrency exchange BitMEX. Hayes was sentenced to 2 years of probation and 6 months of home confinement. BitMEX was ordered to pay $100,000,000 to regulatory authorities. Hayes, Reed, and Delo were each fined more than $10,000,000.
"The defendant chose to use his influence to promote a vision of the crypto industry that directly contradicted the law and aimed to undermine government regulations. He regularly criticized and ridiculed KYC requirements and made it clear that he was not interested in complying with them," prosecutors said.
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