# Unpacking BitMex Enforcement Action 📦

> The following is an experiment in using LexDAO hivemind to concoct a tweet thread summarizing our hot takes on the announced actions against Bitmex 10/1/2020: SDNY DOJ: https://www.justice.gov/usao-sdny/pr/founders-and-executives-shore-cryptocurrency-derivatives-exchange-charged-violation + CFTC: https://www.cftc.gov/PressRoom/PressReleases/8270-20 After we get rough consensus of this draft, we should put it up for a snapshot vote and then tweet out. SNAPSHOT VOTE: https://snapshot.page/#/lexdao/proposal/QmQTghPtmdLCo1UpPAEmk6MLnvipguBAvfLcEzM18RuNzX

Today, the CFTC and SDNY DoJ announced separate actions against BitMex, a popular crypto derivatives platform known for offering hi-leverage on Bitcoin trading. BitMEX was by its own account unregulated by the US regulatory bodies and offered derivatives using up to 100X leverage on its exchange. The leverage and derivative was provided using [perpetual contracts]. https://www.bitmex.com/app/perpetualContractsGuide).
If you click on the link you will see the following pop up warning.

In its civil suit, https://www.scribd.com/document/478304257/CFTC-BitMEX-filing, the CFTC alleges that since 2014 BitMex and its owner operators have skirted their registration requirements owing from their large U.S. customer base and attendant regulatory nexus.

"Much of this trading volume and its profitability derives from its extensive access to United States markets and customers." [SCREENSHOT OF COMPLAINT]

In its statement, the CFTC notes: "BitMEX has failed to register with the CFTC, and has failed to implement key safeguards required by the CEA and CFTC’s regulations designed to protect the U.S. derivatives markets and market participants"

Obviously first steps to avoid said action would be to seek registration with the CFTC or provide sufficient "key safeguards" to avoid offering regulated derivatives to US citizens. Registation status can be checked here: https://www.nfa.futures.org/basicnet/

Also, as an aside, certain crypto like Bitcoin "BTC" and Ether "ETH" have reached a "sufficently decentralised" status to be regulated not as "securities" under the US securities regulatory regime, but as [commodities](https://www.cftc.gov/PressRoom/PressReleases/8051-19). There are also crypto derivatives sold under CFTC compliance--for example, there are companies that offer derivates products on BTC in the US ([LedgerX](https://www.ledgerx.com/) offers futures and options). So far, there have not been any approved companies that conduct futures or options for Ether.

Suffice to say, the CFTC and the SEC are going to co-regulate many crypto assets as it is apparent that they may be either commodities, securities or both. It is even possible to transmutate between the two. For a download of recent CFTC policy go to this IPFS for the ["The CFTC's Role in Monitoring Virtual Currencies."](https://ipfs.io/ipfs/QmTaXVRX3cpWvuU1av7pxBqmZii2LfbTE9AuP4Coy5FbMP?filename=VirtualCurrencyMonitoringReportFY2020.pdf)

In it the CFTC oulines its mission as follows:
* Protecting market participants against fraud, price manipulations, and abusive trading practices.
* Ensuring the financial integrity of the clearing process.
* Promoting transparency, by conducting research on economic issues related to the futures and options markets, and sharing data about market activity.
* Encouraging market efficiency through principles-based regulation.
* Working with the exchanges, self-regulatory organizations, and other governmental and international organizations to enforce against instances of manipulative or disruptive market activity.

In a related criminal suit proceeding in S.D.N.Y., https://www.justice.gov/usao-sdny/press-release/file/1323316/download, the DOJ alleges that Bitmex owner operators (Hayes, Delo, Reed, Dwyer) have conspired to violate, and in fact, violated the Bank Secrecy Act by willingly avoiding sufficient AML measures at BitMex.

Among other indications of willing evasion, the DOJ notes that despite the fact that BitMex owners courted and knew of U.S. customers accessing their exchange, they failed to implement KYC for AML compliance, used only "toothless" restriction to prevent U.S. customers, as well as sought to structure their operations in Seychelles for more favorable regulatory treatment, citing that it cost just "a coconut" to bribe local authorities. Taunting the long-arm of the law can have mixed results, as seen in the many references in the indictment to these and other 'playful' statements.