- The SEC has charged crypto trading platform Beaxy and its executives for operating as an unregistered exchange, broker, and clearing agency.
- Beaxy has agreed to cease operations, shut down its platform, and transfer customer assets and funds back to customers as part of the settlement with the SEC.
- The charges filed against Beaxy are part of a larger crackdown on alleged abuses in the digital asset industry.
The crypto industry has been facing increased scrutiny from regulators worldwide, with the U.S. Securities and Exchange Commission (SEC) playing a significant role in the effort to establish regulatory compliance.
Recently, the SEC charged the crypto asset trading platform Beaxy.com (the Beaxy Platform), its executives, and its market makers for various registration failures. The charges come as the SEC continues to crack down on alleged abuses in the digital asset industry.
Beaxy and Its Executives Charged by the SEC
In a press release, the SEC announced that it had charged the Beaxy Platform, its founder Artak Hamazaspyan, and Beaxy Digital Ltd. for failing to register as a national securities exchange, broker, and clearing agency. Additionally, the SEC accused Hamazaspyan of raising $8 million in an unregistered offering of the Beaxy token (BXY) and misappropriating at least $900,000 for personal use, including gambling. Market makers operating on the Beaxy Platform were also charged as unregistered dealers.
According to the SEC, since October 2019, Nicholas Murphy and Randolph Bay Abbott have managed Windy Inc., which maintained and provided the Beaxy Platform as a web-based trading platform facilitating the buying and selling of crypto assets offered and sold as securities. The SEC’s complaint alleges that Windy, through the Beaxy Platform, violated the Securities Exchange Act of 1934.
The SEC’s Allegations and Enforcement Actions
The SEC claimed that Windy should have registered as an exchange, clearing agency, and broker due to its activities related to the Beaxy Platform. The complaint also alleges that after Murphy and Abbott convinced Hamazaspyan to resign following the unregistered offering of BXY and misappropriation of investor assets, the two continued the operation of the Beaxy Platform through Windy, making them liable for operating an unregistered exchange, broker, and clearing agency.
In addition, the SEC alleged that Windy agreed with Brian Peterson and his companies to provide market-making services for BXY. In May 2020, one of Peterson’s companies entered a similar market-making agreement for another crypto asset security. By doing so, Peterson and his entities allegedly acted as unregistered dealers.
The settling parties agreed to perform certain undertakings, including ceasing all activities as an unregistered exchange, clearing agency, broker, and dealer; shutting down the Beaxy Platform; and transferring all customer assets and funds to each respective customer. They also agreed to pay civil penalties without admitting or denying the allegations.
Implications for the Crypto Industry
The Beaxy case is part of U.S. prosecutors and regulators’ expanding crackdown on the digital asset industry. Recently, the Commodity Futures Trading Commission sued Binance, the world’s largest crypto exchange, for alleged violations of rules preventing illegal activity. Prosecutors in New York also added a Chinese bribery charge to their fraud case against Sam Bankman-Fried, the founder of the now-bankrupt crypto exchange FTX. Furthermore, Coinbase Global Inc disclosed that the SEC had found potential securities law violations and might sue.
SEC Chair Gary Gensler emphasized the need for crypto intermediaries to comply with the law, stating, “This case serves as yet another reminder to crypto intermediaries that their business models must comply and adapt to the law, not the other way around.”
The Beaxy case and other recent regulatory actions underscore the increasing focus on the crypto industry and signal that more enforcement actions are likely to follow. Market participants should take note and ensure that their activities adhere to existing legal frameworks and regulatory requirements.
