SEC Sues Beaxy for Operating an Unregistered Securities Platform

The US Securities and Exchange Commission (SEC) alleged that crypto trading platform Beaxy and its executives ran an unregistered securities exchange, broker, and clearing agency.

The platform ceased operations a day before the SEC lawsuit.

Beaxy Fouder Misappropriated Nearly $1M in Investor Funds

In a press release on Wednesday (March 29, 2023), the SEC stated that Beaxy functioned as an exchange, a broker, and a clearing agency without registering all three services.

Beaxy founder Artak Hamazaspyan is also accused of unlawfully raising $8 million in an unregistered securities offering of its native token, BXY. According to the SEC complaint, Hamazaspyan embezzled $900,000 of the funds for personal use, which included gambling.

The SEC also brought charges against Nicholas Murphy and Randolph Bay Abbott, who maintained the Beaxy platform through Windy.

As stated in the press release, Murphy and Abbott took over Beaxy and were operating the platform through Windy after Hamazaspyan stepped down following the unregistered token sale and his embezzlement of investors’ funds. The US regulator alleges that Windy violated securities laws because it ran an unregistered exchange, broker, and clearing agency.

According to the director of the agency’s division of enforcement, Gurbir Grewal, Beaxy’s alleged lack of distinction between the three functions was risky for investors.

“To protect investors, there are separate registration requirements for exchanges, brokers, and clearing agencies, with each essentially acting as a check on the other. When a crypto intermediary combines all of these functions under one roof—as we allege that Beaxy did—investors are at serious risk. The blurring of functions and the lack of registrations meant that regulations designed to protect investors were not followed or even recognized by Beaxy.”

Furthermore, Brian Peterson and his companies, collectively called Braverock entities, were also caught in the SEC charges. Brian and his companies struck an agreement with Windy to provide market-making services for the Beaxy token and also made a similar arrangement for another crypto security, causing Peterson and Braverock to be unregistered dealers.

Beaxy Shuts Down Operations

While Murphy, Abbott, Windy, and Peterson neither denied nor accepted the SEC allegations, the parties agreed to carry out certain actions, which includes closing down the Beaxy platform and ceasing the operations of an unregistered exchange, clearing agency, and a broker. Windy will also destroy all BXY tokens in its possession.

Notably, Beaxy announced on March 28 in a blog post, a day before the SEC’s press statement, that it would close down operations because of the “uncertain regulatory environment surrounding its business.”

Beaxy noted that the exchange cooperated with the SEC for more than two years but said the uncertain regulatory landscape made it difficult for the platform to keep functioning. Trading has been halted, and users are advised to withdraw their assets within 30 days.

Meanwhile, the SEC said it is “litigating its charges against Hamazaspyan for securities fraud and against Hamazaspyan and Beaxy Digital for the unregistered offering of BXY.”

The latest development shows the SEC’s continued clampdown on the crypto industry in recent times. The watchdog previously accused Coinbase, Kraken, Genesis, and Gemini of breaking securities laws.