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SDNY COURTHOUSE, Sept 6 – Four executives of the Bitcoin Mercantile Exchange or BitMEX were criminal defendants for violations of the Bank Secrecy Act.   On February 24, with no notice, a guilty plea - each to a single count.

      Back on October 13, 2021 U.S. District Court for the Southern District of New York  Judge John G. Koeltlt held a proceeding. Inner City Press covered it, below.

On May 20, after Hayes pleaded guilty, he was sentenced - to two years probation, the first six months of which are home confinement with location monitoring. Inner City Press live tweeted it here and below.

That sent a precedent - now co-defendant Samuel Reed has asked for time served; on August 8, Dwyer also pleaded guilty: "Minute Entry for proceedings held before Judge John G. Koeltl: Change of Plea Hearing as to Gregory Dwyer held on 8/8/2022. Deft Dwyer present w/atty Jenna Dabbs. AUSA Nathan Rehn. Reporter Lisa Frankel. Deft Dwyer enters plea of guilty to Count 1 of indictment. Sentence date 11/10/2022 at 4:30pm. PSI ordered. Bail cont'd."

Defendants have asked to modify supervised release to be able to speak with Dwyer, citing social relationships before the offense conduct. On September 2, the prosecutors opposed loosening.

On September 6, Judge Koeltl said talk with Dwyer, about the case(s), should only be in the presence of counsel, citing deterrence: "MEMO ENDORSEMENT as to Arthur Hayes, Benjamin Delo, Samuel Reed on re: [398] LETTER by Arthur Hayes, Benjamin Delo, Samuel Reed addressed to Judge John G. Koeltl from James Joseph Benjamin, Jr. dated August 25, 2022 re: Standard Condition of Supervision Number 8. ENDORSEMENT: Standard condition 8 is modified to allow Messrs. Hayes, Delo, and Reed to communicate with Mr. Dwyer in connection with any pending or prospective litigation in the presence of counsel. There is no other reasons proffered for an exception to this otherwise reasonable condition of supervised release which is calculated to promote the reasonable objectives of supervised release including deterrence. So Ordered. (Signed by Judge John G. Koeltl on 9/5/2022)." Watch this site.

When co defendant Benjamin Delo came up for sentencing on June 15, Delo's lawyer urged no home confinement at all, just travel back to Hong Kong. And he got it - with thirty months probation the administration of which is unclear. Inner City Press live tweeted it here:

Delo's lawyer: Even home confinement is unnecessary. He is a British citizen, here on a tourist visa. He cooperated with the CFTC.

Defense: Ben was living in Hong Kong. He gave money to Oxford.  [There are more than a dozen suited persons here in the gallery]

Judge: Didn't he know there were US persons im the platform?

Defense: He didn't encourage it

Delo: This case hurts my philanthropy.  AUSA: Yes most messages we used were from Mr Hayes. But many were to Mr Delo. He knew.

Judge Koeltl: Guideline is 6 to 12 months. The US chose not to go for money laundering or fraud. The co-defenfant [Hayes], I sentenced to 6 months home confinement. But Delo has lived in Bermuda. So I sentence Delo to 30 months probation, no home confinement.

On July 13, Delo's counsel filed notice that he will submit a letter motion on or before August 1 to redact portions of the transcript.

On July 18, Delo's counsel emailed Judge Koetlt proposed redactions, the scope of which the public and press cannot see, arguing in a cover letter that the information "should be treated with caution." If so, why did his counsel say it in open court seeking a time served sentence?

Then this: "MEMO ENDORSEMENT as to Benjamin Delo (2) granting [376] MOTION to Redact [367] Transcript. ENDORSEMENT: APPLICATION GRANTED. SO ORDERED. (Signed by Judge John G. Koeltl on 7/19/2022)." Of course, it doesn't change what was said in open court.

Later in July co-defendant Reed was sentenced to 18 months probation, and travel anywhere: "JUDGMENT IN A CRIMINAL CASE as to Samuel Reed (3). THE DEFENDANT: pleaded guilty to count ONE OF THE INDICTMENT. ALL OPEN COUNTS are dismissed on the motion of the United States. PROBATION: Eighteen (18) months on Count One. --The Court will not impose the Special conditions suggested by the Probation Department at Pages 45 and 46 of the Presentence Report. --The defendant will be permitted domestic and international travel, and will be permitted to have contact with Messrs Hayes and Delo. -No fine is imposed, because the fine has already been paid. ASSESSMENT: $100.00. Special instructions regarding the payment of criminal monetary penalties: --The special assessment shall be due immediately. (Signed by Judge John G. Koeltl on 7/22/2022)."

Docketed on June 29, this: "CASH BAIL RETURNED as to Benjamin Delo as per [357] Order, Terminate Motions, dated 06/22/2022, from Judge John G. Koeltl, in the amount of $2,000,000.00, No. 03046969, Check Dated 06/28/2022, payable to SMITH VILLAZOR LLP."

On July 5, Delo's counsel wrote to Judge Koeltl asking that the judgment be amended to allow Delo to speak with Hayes and Reed.

And he got it: "MEMO ENDORSED granting [364] LETTER MOTION Request to Amend Judgment (to reflect that Standard Condition of Supervision Number 8 not apply to contact with Messrs, Hayes and Reed) as to Benjamin Delo (2)... ENDORSEMENT: APPLICATION GRANTED. SO ORDERED. (Signed by Judge John G. Koeltl on 7/5/22)."

Hayes on May 20, 2022: OK - sentencing of BitMEX's Arthur Hayes begins  @SDNYLIVE . He wants probation; US wants more than a year. Inner City Press has been covering the case (& much else crypto)   and, after scoping out Hayes' crowd, will live tweet

Judge Koeltl: What's the nature of the fine? Hayes' lawyer: We've paid $10 million to the CFPB. So Paragraph 62 should include that. Assistant US Attorney: That's correct, your Honor.

Hayes' lawyer Benjamin: Probation rejected some of our suggestions. But we're OK with it - no objections at this time. Judge Koeltl: OK, I'll listen to your argument. Hayes' lawyer: It is a privilege for us to serve Arthur Hayes. His mother from Buffalo is here.

Hayes' lawyer: The plea agreement is for 6 to 12 months. We are asking for probation with no home confinement and for Mr. Hayes to return to his home in Asia. We disagree with the government. Mr. Hayes has already suffered collateral consequences.

 Hayes' lawyer: The government agreed to six to twelve months - but now they are asking for more. They argue that the law is too lenient, in applying the Bank Secrecy Act to crypto-currency... There was a lack of regulatory guidance.

 Judge Koeltl: The defendant pleaded guilty to willfully having violated the Bank Secrecy Act.  He knew he was serving US residents. Go ahead. Hayes' lawyer: The point is, the violation is not having an AML program. Mr. Hayes is a charismatic leader.

 Hayes' lawyer: Let me tell you about Mr. Hayes' love for his mother, some of it cannot be spoken of here. Mr. Hayes went to China and feel in love with Asia.  He worked at Deutsche Bank and Citi then into crypto currency. He was a pioneer.

Hayes' lawyer: We have a letter from the Jackie Robinson Foundation. Let me read from it: "Arthur is open minded." The government seeks to belittle this. Mr. Hayes accepts responsibility - he wishes he had had better controls and keep US persons off the platform

 Hayes's lawyer: He left Singapore to turn himself in. He lost his immigration status there. He's suffered significant reduction in the value of the BitMEX business. It was a classic start-up. He slept on a couch in Hong Kong. He focused on retail traders in China

 Hayes' lawyer: He moved to Shanghai and the business caught fire. He got a lawyer from BNP Paribas. He hired Sullivan & Cromwell and PriceWaterhouseCoopers on whether the company should have a KYC program.

Hayes' lawyer: Yes, customers could lie to BitMEX and use a VPN to conceal where they were located. But we blocked many - we have the customer support tickets. The controls were not a meaningless scam.

Hayes' lawyer: By London, the CTFC investigation was in the early stage. And BitMEX had no idea of the criminal investigation. Still BitMEX hired a former FBI agent.  Judge Koeltl: Let me remind people in the gallery to keep their masks up. COVID number are up

 Hayes' lawyer: Anti-money laundering programs to do not prevent money laundering.  This is not Silk Road. This is very different. Mr. Hayes wrote thoughtfully about Facebook's Libra. He wasn't promoting law breaking

 Hayes' lawyer: DOJ is coming perilously close to illegal viewpoint discrimination. Judge Koeltl: I doubt that's the point the government was making.  Hayes' lawyer: OK, on to my last section. [We're one hour into this sentencing].

Hayes' lawyer: The best is yet to come. He can do great things. He should get probation, and return to Asia. Thank you.

Judge Koeltl: It's never necessary to thank the  Court. Mr. Hayes?  Hayes: As Mr. Benjamin said, I take responsibility. Let me return home.

Judge Koeltl: US? AUSA Raymond: Probation would be insufficient. Here Mr Hayes has the same guideline as a check cashing store that didn't have an AML program. This was bigger. There were real consequences. We're saying people like Jeremy Spence were his customers

 AUSA Raymond: It is difficult to obtain court orders in the Seychelles. Even his statement "We block all US I.P. addresses was false - you could trade from the US, as long as the account was first set up with a non US IP. He knew, in Sept 2015.

 AUSA Raymond: He mocked his customers as degenerate gamblers. He wants to continue to work in crypto industry. If no jail, the message is that paying a fine is the cost of violation. This case is being closely watched - Judge Koeltl: I'm more about the individual

 AUSA Raymond: We suggest above 6 to 12 months. Thank you. Judge Koeltl: The offense is very serious. He caused his company to violate the Bank Secrecy Act. On the other hand, the US chose not to accuse the defendant of fraud. There are no identifiable victims

Judge Koeltl: There must be a penalty more than monetary. The court intends to impose a sentence of probation of two years, with home detention for six months with location monitoring.

 Now Hayes' lawyer says he wants to serve the home confinement in Asia, not Miami. Judge Koeltl: He bought an apartment there. Hayes' lawyer: Give us time to submit something. He'd like to go to Singapore today. Then see how the location of confinement is decided

 Judge Koeltl: The interview with probation will be Monday. It's a not a big burden to stay in the US until then. Hayes' lawyer: OK. He wants to travel.

Judge Koeltl: I'll put in, Defendant is permitted to travel internationally - AFTER the home detention.Hayes' lawyer: Mr. Hayes' two co-founders are now felons too. He wants to communicate with them despite standard condition 8.

Judge Koeltl: Fine, I'll add that. What about Mr. Dwyer? Hayes' lawyer: He has not pleaded guilty. I don't know where that is going.Judge Koeltl: Anything further? No? Good afternoon, all. Adjourned.

On February 24, with no prior notice and not included in the day's Calendar on PACER, this: "Damian Williams, the United States Attorney for the Southern District of New York, announced that ARTHUR HAYES and BENJAMIN DELO, founders and executives 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 their respective plea agreements, HAYES and DELO each agreed to separately pay a $10 million criminal fine representing pecuniary gain derived from the offense.  HAYES and DELO pled guilty today before U.S. District Judge John G. Koeltl."

  On May 4 Hayes put in his sentencing submission, asking for probation in a redacted letter. The argument includes that "in this first of its kind prosecution the government has achieved a notable success by establishing the principle that cryptocurrency derivatives trading platforms much comply with the Bank Secrecy Act if they provide services to US customers." Who knew? Hayes lost his immigration status in Singapore - then, a redaction.

Back on March 9, 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.

For those wondering why not, even in the absence of Judge Koeltl, plead guilty before a Magistrate Judge, that would require a second step of Judge Koeltl approving the Magistrate's decision. So the plea was before Chief Judge Swain as Part I Judge; the sentencing is set for July 13 before Judge Koeltl.

  We'll have more on this.

  Earlier: The complaint says the defendants "deliberately failed to implement BSA-Compliant AML and KYC programs at BitMEX."

They have demanded a bill of particulars, and the government has opposed it.  Judge Koeltl on October 13 gave the defendants until October 22 to reply to DOJ's opposition.

On October 20, after initially being stopped from entering the SDNY Magistrates Court (even while the overflow room 15A was locked), Inner City Press managed to enter and witness the telephone presentment of defendant Gregory Dwyer, by phone - from JFK airport, as it happened.

Dwyer's lawyers had written in request the airport phone presentment so as to avoid a night of incarceration (to which others on October 20 were confined, in non white collar cases).

Magistrate Judge Robert W. Lehrburger could be heard speaking into the phone, but the other side's responses could not be, even in the courtroom. But the conditions of release were announced by Judge Lehrburger, including ultimately freedom to travel to Bermuda.

 On January 20, 2022 Judge Koeltl ruled, among other things, that Hayes' quote about bribing officials in the Seychelles with a coconut will not come into evidence, as too inflammatory. From the January 20 rulings, the prosecution may be in trouble. For more, in the run-up to the trial that Inner City Press will cover along with many other now unblocked trials, see Bloomberg by Chris Dolmetsch, here, and Law360 by Pete Brush (paywall/7 day trial), here. Here's the video from Taipei, Hayes v. Nouriel Roubini, here (from Minute 10: Andrew Neil asks, How much are you paying to bribe the Seychelles authorities? Hayes says, "A coconut.")

  Soon after the January 20 conference, the defendants submitted for signature a revised subpoena to the CFTC, about the March 1, 2016 CFTC letter about ICBIT and a June 26, 2018 meeting with Hayes and Sullivan & Cromwell.

The trial is set for March 30: "ORDER as to Arthur Hayes, Benjamin Delo, Samuel Reed. Trial in this matter is adjourned to Wednesday, March 30, 2022, at 9:00am (Jury Trial set for 3/30/2022 at 09:00 AM before Judge John G. Koeltl.) (Signed by Judge John G. Koeltl on 12/7/21)."

The case is overall case is US v. Hayes, et al., 20-cr-500 (Koeltl)

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