Arthur Hayes is the man who founded one of the most successful exchanges, it was he who introduced the trend for leverage over 3x and it was he who paid the price for ridiculing the KYC system and until recently did not want to follow the rules dictated by the United States.
Biography.
(Arthur Hayes)
Full name: Arthur Hayes.
Date of birth: 1985.
Place of birth: Detroit, Michigan.
Parents: My father worked at a factory, and my mother was a manager at General Motors, that is, typical representatives of the middle class in the United States.
Arthur spent his childhood traveling between Detroit and Buffalo, as his mother Barbara did everything possible for her son to enroll in the elite Nichols Private School.
After graduating from Nichols High School in 2004, Hayes manages to enroll in Wharton Graduate Business School, Pennsylvania.
(Wharton Graduate Business School)
This Business School is included in all the Tops of the best educational institutions in the USA!
2008 - 2010.
After successfully graduating from the university, he received a bachelor's degree in Economics and Finance in 2008.
In 2008, Arthur moved to Hong Kong to obtain a license from Deutsche Bank.
There, he held the position of a trader in synthetic stocks for a long time, and he was also a market maker for Deutsche Bank ETFs.
(Deutsche Bank)
Deutsche Bank is the largest financial conglomerate in Germany in terms of the number of employees and assets.
After returning home a year later, he enrolled in a graduate program at Deutsche Bank, which gave him the opportunity to travel to London.
Later, Arthur got a job at the same bank in Hong Kong, but then the bank was experiencing huge financial losses amid the economic crisis and initiated massive cuts, so 22-year-old Arthur earned only half of what he expected.
Arthur stayed at this job for a while just to survive.
The year is 2011.
A little later, in 2011, he joined CitiGroup.
(CitiGroup)
Citigroup is one of the largest international financial conglomerates.It is one of the "big four" US banks, along with Bank of America, JPMorgan Chase and Wells Fargo.The bank manages assets worth over $1.8 trillion dollars.Citigroup is the primary dealer of U.S. Treasury securities.
At his new company, Hayes took up the position of Delta One trader and was the chief trader of Citi's Asian ETF offerings, as well as tradable index forwards, index swaps, and custom baskets.
After 2 years, he resigned from Citi and went into "free swimming".
Arthur Hayes and Bitcoin.
The year is 2013.
After Arthur left CitiGroup, he became interested in investing in bitcoin ($BTC), which he first learned about in April of the same year.
Initially, he was involved in arbitrage between various spot exchanges and bitcoin derivatives.
Having gained some experience in this field, Hayes realized that there was a need to trade bitcoin derivatives.
BitMEX from idea to product.
(BitMEX)
Taking this idea into account, he began work on BitMEX in January 2014.
This trading platform acts 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.Prior to working on BitMEX, Ben Del developed high-frequency trading systems for JPMorgan Chase, and Samuel Reed specialized in rapid web application design.
After 11 months of development, they launched the BitMEX trading platform and since then it has been the most popular derivatives exchange for retail investors.
2014 - 2015.
During the first year after its launch, the BitMEX crypto exchange was not very popular, and the income from the trading commission was barely enough to pay for servers.
In October 2015, Hayes decided to make a radical change to BitMEX, namely to increase the leverage limit from 3x to 100x.
And this has brought great benefits to the company, as trading on the platform has literally come to life!
"Trading without leverage is like driving a Lamborghini in first gear: you know it's safer that way, but that's not why you bought it," Hayes described the innovation on the BitMEX blog.
As the cryptocurrency industry was booming, it helped BitMEX a lot.
2016 - 2019.
In 2017, the company had to expand and hire 30 new employees to cope with the surge in activity.
And by 2018, BitMEX had become a trading platform for serious transactions with large amounts: the daily turnover could amount to several billion.
The co-founders of the exchange reacted differently to the success and the drastic change in their financial situation.Reed, for example, tried to keep a low profile and, being a billionaire, continued to use public transport and lead an inconspicuous lifestyle.Hayes, on the other hand, was not averse to flaunting his achievements and preferred to play the role of a financial nonconformist.
Criminal background.
(Tweet by Arthur Hayes)
On June 29, 2019, Arthur posted the following tweet: "$1 trillion in transactions per year, statistics don't lie. BitMEX is not something to be trifled with. Nouriel, see you on Wednesday."
Nouriel Roubini is a professor of economics at New York University and an implacable opponent of BitMEX.
(Debate between Arthur Hayes and Nouriel Roubini)
In July 2019, they met at the Asian Blockchain Summit and clashed in a verbal duel on the forum stage - later these events were called "Binding in Taipei."
Roubini accused Hayes and BitMEX of evading regulation and fraud, according to the professor, the creators of the exchange profited from commissions and supported the liquidation fund at the expense of assets of bankrupt traders.
When asked about the choice of registration location, Hayes said that the only difference between the American and Seychelles authorities is that the former are more expensive to bribe.
When asked how much the Seychelles authorities cost, he replied: "One coconut."
During the speech, Arthur Hayes behaved extremely self-confident and showed clear disregard for the authorities.
Perhaps this was the reason for his self-sabotage.
The great crypto heist.
("The Great Crypto Heist")
A few weeks after the summit, Roubini published an article titled "The Great Crypto Heist."
In it, he drew attention to the potential danger of offshore exchanges and their systematic violations of laws, the main blow fell on BitMEX.
Roubini accused the exchange of being interested in its customers losing money and that the company uses internal trading units to stay ahead of traders and profit from liquidation.
Why is Hayes in trouble with the law?
(Arthur Hayes)
In the fall of 2020, the U.S. Commodity Futures Trading Commission (CFTC) filed a civil lawsuit against BitMEX and its founders for creating an unregistered trading platform, as well as for non-compliance with the Banking Secrecy Act, KYC and AML requirements.
KYC - know your customer (user identity verification procedure). AML - anti-money laundering.
Arthur Keyes, Sam Reed, Ben Delo, and Greg Dyer were also charged with conspiracy and intentionally evading the establishment, implementation, and maintenance of anti-money laundering policies.
A criminal case has been opened against Hayes and his colleagues, in which each of them faces up to five years in prison.
According to the lawyer, the charges usually contain evidence of criminal activity: fraud, credit card theft, terrorist financing, etc. However, there is nothing like this in the case of the lawsuit against BitMEX.Laurel Loomis Rimon believes that in this way the American authorities want to send a message to the entire crypto community.: "You have to understand that this industry falls under our jurisdiction."
In fact, US law does not prohibit unregistered exchanges, which is BitMEX, from selling leveraged contracts to American retail customers.
But by law, such contracts must be completed in 28 days.
And one of the most sought—after products of the exchange, the perpetual swap, has no "expiration date", a trader can keep positions open as long as he wants.
In other words, BitMEX's financial instruments actually violate this requirement.
The outcome of the trial.
(Arthur Hayes)
In February 2022, he pleaded guilty to intentionally not implementing an anti-money laundering (AML) program, as he did not introduce a KYC system that allowed unverified users to spend tens and hundreds of millions of dollars through the exchange.
On May 20, 2022, a verdict was handed down in the federal court in New York in the case of Arthur Hayes, the former CEO of the BitMEX crypto exchange.
Hayes will serve 2 years of probation and 6 months of house arrest.
BitMEX has been ordered to pay regulators $100,000,000.
Hayes, Reed and Dela were fined more than $10,000,000 each.
"The defendant decided to use his influence to promote the vision of the crypto industry, which was directly contrary to the law and was designed to undermine government regulations.He regularly criticized and ridiculed KYC requirements and made it clear that he was not interested in complying with them," the prosecutors said.
