Cryptocurrency exchange and derivatives trading platform BitMEX has been through a traumatizing ordeal in the past few months, with investigations and fallouts marring its operations. However, it appears that the new year is providing a chance for the company to start on a clean slate.
Hayes Tried to Pull a Fast One
Recently, Pavel Pogodin, an attorney at Hong Kong-based legal firm TransPacificLaw, confirmed on Twitter that BitMEX had settled a lawsuit with Frank Amato and Elfio Guido Capone, two of its earliest investors. According to court documents, the derivatives exchange had settled with the two men to the tune of $44 million, which was paid in cash and equity shares.
The suit had initially been filed early last month. According to reports, the plaintiffs claimed to have been the earliest investors in BitMEX, and that company founder Arthur Hayes had manipulated their investment agreement.
Per reports, Hayes had contacted the investors via LinkedIn back in 2015. At the time, BitMEX was a novel business idea that needed backers. Amato, who formerly worked as a commodity derivatives trader for JPMorgan, claimed that Hayes sought his financial backing and stated that BitMEX was in need of “equity investors.”
Hayes promised to sell 0.5 percent of BitMEX to Amato for a $50,000 investment. In addition, Amato would receive the same rights as the exchange’s founders. Amato was also promised prior knowledge of any additional capital raises and financing moves, thus allowing him to maintain his ownership stake.
As for Capone, he claimed that Hayes had written to him to confirm BitMEX’s $10 million valuation when he sought his financial backing. Hayes allegedly offered him a ten percent stake in the company, adding that the exchange had gotten some investors’ financial backing. However, when Capone tried to convert his investment into a 0.5 stake in BitMEX Hayes offered to give him $125,000 in exchange for “tearing up” the contract.
Frustrated, Capone reached out to Ben Delo and Sam Reed, BitMEX’s other founders. He got no helpful response.
The plaintiffs, along with a third one, sought to recoup their investment’s current value, which they claimed to be $90 million. They also claimed another $450 million in damages.
The investors’ suit is only the third major case that BitMEX got dragged into last year. In September, a charge from the Department of Justice alleged that the company and the three executives mentioned earlier of deliberately targeting traders in the United States to engage in unregistered securities trading. BitMEX was also accused of implementing subpar anti-money laundering (AML) and know-your-customer (KYC) security policies.
On the same day, the Commodity Futures Trading Commission (CFTC) filed a complaint with the Southern District of New York, alleging that BitMEX offered illegal leverage to the tune of $1 trillion since its inception.
BitMEX has tried to make amends. It has fired several of its executives, including Hayes, and a recent announcement from the firm showed that it had implemented new identity verification programs. The company will hope to effectively chart a course forward in the coming weeks.