Stumbled upon civil lawsuit against Bitmex today, and it is fascinating.
Bitmex is/was a legendary a crypto exchange, founded by a former bank derivatives trader called Arthur Hayes in Hong Kong. Hayes was black, smart, and ruthless. He structured some of the first crypto derivatives. Some of the crypto concepts I first heard associated with Bitmex:
- Perpetual futures
- 100x leveraged trading
- The insurance fund, where funds are accumulated from profits to payout future winners when undercollateralized losers cannot pay
Anyway on to the lawsuit. It was filed by a Russian citizen, Pavel Lyashenko in California.
Even though most people associate Bitmex with Hong Kong, it seems, the base of operations with the largest headcount was really in San Francisco. Looks like staff count was roughly 60% SF, 30% HK and 10% Singapore. That's why the suit was filed in Cali.
It accused Bitmex of being:
a rigged casino, set up to use sensitive insider information of its
traders to automatically liquidate them and misappropriate their money, when it was particularly
profitable for Defendants to do so.
They had an Insider Trading Desk "ITD" to manipulate markets. ITD had "God Access" to see all positions for all traders. They had a prediction engine that used the God Access to predict how much money they would make from liquidations if the prices moved in any direction. They priced their index prices off known low liquidity venues like Coinbase Pro, Kraken, Bitstamp, where small trades could dramatically alter prices. They would freeze trader access to Bitmex during the price movement, liquidate them, and then reopen access.
Hayes, Delo and Reed, withdrew 440 million dollars from Bitmex and then skipped. While they were active, Bitmex received 11 billion in deposits and made 1 billion in fees.
How did Sam Bankman-Fried become the No 1 trader on Bitmex with this kind of stuff working against him? My best guess, is that Sam somehow backward engineered what they were doing on the automated profit taking and took advantage of it.