The Rise and Fall of Bitcoin Billionaire Arthur Hayes
The story is a racy read and starts off like:
“Arthur Hayes lives large. Like Bobby Axelrod-in-Billions large. Just replace New York with Hong Kong and infuse it with a dose of Silicon Valley—where unicorns spring from the minds of irrepressible company founders—and, well, you get the picture. One minute Hayes is hitting the powder in Hokkaido, the next he’s crushing it on a subterranean squash court in Central—Hong Kong’s Wall Street. And all the while he keeps one eye trained on an obscure-sounding currency exchange that he built out of thin air and through which more than $3 trillion has flowed.
Screen-star handsome and fabulously wealthy, the African American banker turned maverick personifies the contemporary fintech pioneer. But the feds describe Arthur Hayes differently: a wanted man who “flouted” the law by operating in the “shadows of the financial markets.” Hayes’s indictment was unsealed in October, and he remains at large in Asia as prosecutors in New York hope to arrest him and try him on two felony counts, which carry a possible penalty of 10 years in prison.
This is a tale of new money versus old, financial whiz kids upstaging banking’s old guard, and American authorities attempting to apply 20th-century laws to 21st-century innovation. Prosecutors allege that Hayes and his business partners violated the Bank Secrecy Act by failing to implement and maintain an adequate anti-money-laundering program—to weed out bad actors and dirty money. Meanwhile, Hayes’s colleagues in the cryptocurrency world believe he is being punished for building an ingenious product that has baffled lawmakers, bedeviled regulators, and—once it became wildly popular—posed a threat to some of the markets’ biggest players. Adding to the chorus of voices are some high-powered legal experts who consider the case United States of America v. Arthur Hayes to be largely unprecedented.”
Part of the story is a public face off between Hayes and the outspoken economics professor Nouriel Roubini:
“By the summer of 2019, the amount of money moving through BitMEX was staggering. On June 27, the company announced it had set a new daily record, trading $16 billion. Two days later Hayes tweeted: “One Trillion Dollars traded in a year; the stats don’t lie. BitMEX ain’t nothing to fucking [sic] with. @Nouriel I’ll see you on Wednesday.”
The man he was tweeting at was Nouriel Roubini, a respected NYU economics professor—and BitMEX’s fiercest critic. Dubbed Dr. Doom, Roubini sat on President Clinton’s Council of Economic Advisers and served at the Treasury Department, the International Monetary Fund, and the World Bank. In other words, he was about as establishment as Hayes was contrarian. On July 3, the pair faced off onstage at the Asia Blockchain Summit in what was publicized as “the Tangle in Taipei,” taking their seats as the theme from Rocky blared overhead.
The professor spoke first and went straight for the jugular: “Shitty behavior occurs in this particular industry—con men, criminals, scammers, snake oil salesmen, and so on. Next to me is a gentleman who works with degenerate gamblers and retail suckers, nonaccredited investors.” In his Italian-accented English, Roubini stressed, “There’s a whole nice Twitter feed called BitMEX Rekt—rekt means ‘fucked in the ass’—where every other second somebody has been liquidated by these guys, and thousands of them have gone into financial ruin.” He accused the company of bucking regulations, insisting that with BitMEX, “everybody gets rekt,” with the exception of Hayes and his colleagues, who, Roubini said, reap commissions and fees and maintain a liquidation fund that profits off of people going bankrupt.
Hayes countered with whataboutism: “BitMEX. One hundred times leverage. So what? You could trade this type of leverage anywhere you want to go. In the United States we have things called [exchange-traded funds—ETFs]. There was a great one…and it was [based on the idea of] short volatility. A one-day spike in February 2018—in the most highly regulated financial market in the world, highly liquid, and all these nice banks, people with suits on, went to nice universities, and your ETF went to fucking zero. Rekt!” It was a curious line of argument for someone who got his start in finance by building and pushing ETFs.”
The article ends pointing to the double standards of US regulation:
“By charging BitMEX’s founders—personally—with serious crimes carrying serious time, officials have angered many in the wider crypto community. Some feel strongly that the game is rigged. “Show me a bank that doesn’t have money-laundering violations and I’ll show you a piggy bank,” Jehan Chu told me. “It’s a double standard. Who went to jail from HSBC for their money laundering and, you know, their Iran deals and all these kinds of sanctions violations? They got fined.” He’s not wrong. After HSBC admitted to laundering nearly a billion dollars for the Sinaloa cartel and moving money for sanctioned customers in Cuba, Iran, Libya, Sudan, and Myanmar, the Justice Department elected not to indict the bank or its officials, instead having it pay a $1.92 billion fine and install a court-appointed compliance monitor.
That was hardly an aberration. Barclays, BNP Paribas, Credit Suisse, Deutsche Bank, ING, Lloyds Banking Group, Royal Bank of Scotland, and Standard Chartered have all paid fines for conduct that has included money laundering, sanctions violations, and massive tax fraud. In the world of high finance, charging corporate officers in their individual capacity is rare. “You can Google ‘JPMorgan’ and ‘fraud’ and look at what comes up,” Hartej Singh Sawhney suggested. “Wells Fargo, JPMorgan, Goldman Sachs—they have pleaded guilty to fraud. And yet none of their sentences or fines are nearly as bad as what we’re looking at for Arthur.””