SEC Sues Beaxy Founder For Violating Crypto Exchange Rules

It is the first time that the Securities and Exchange Commission has taken action against a cryptocurrency platform as part of its ongoing investigation of cryptocurrency exchange, brokerage, and clearing services operated simultaneously by Beaxy.com. 

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The Chair of the Securities and Exchange Commission Gary Gensler has frequently harped on companies that conduct multiple business operations and that, in his view, they should always be registered separately as separate companies. Gensler recommends that companies separate their business operations and register them separately as well. 

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In the recent past, the SEC has been ramping up enforcement against the larger participants in the industry, including the recent notification of Coinbase Global Inc. of its intent to sue Coinbase Global Inc. based on the fact that Coinbase Global Inc. had been offering unregistered digital assets and other issues without the proper registration. 

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Beaxy's founder, Artak Hamazaspyan, is also being sued for securities fraud by the markets watchdog. A statement issued by the SEC on Wednesday alleges that Hamazaspyan misappropriated $900,000 from the company's crypto token, BXY, in order to gamble and otherwise spend the funds. The company raised $8 million by offering its own crypto token, BXY. 

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In a statement released by the SEC Enforcement Director Gurbir Grewal, he said, “Investors are at serious risk when a crypto intermediary combines all of these functions under one roof, as Beaxy purportedly did,”. It has been revealed by Beaxy that it did not follow or even recognize regulations that were designed to protect investors, as a result of the blurring of functions and the lack of registrations.

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The agency also announced that Nicholas Murphy and Randolph Bay Abbott, who manage Beaxy at present, had reached an agreement with the individuals who were previously responsible for managing it. In its statement, the SEC said in part that the two took over the platform from Hamazaspyan, and operated it through their company Windy Inc., even without registration, the agency continued. It was also alleged that Brian Peterson's group of companies, including Braverock Investments LLC, were acting as market makers for the platform, allegedly acting without registration.

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As for the companies and individuals involved with the latter group, none admitted or denied the allegations made against them. Windy, Abbot, and Murphy did voluntarily agree to pay $79,200 in civil penalties, and Peterson and his companies settled for $86,000. 

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The company announced on its own website on Wednesday that it had ceased operations, citing the uncertainty of the regulatory environment surrounding the company's business as one of the reasons for its closure.

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This matter is now behind our clients' heads, and they are excited that the development of cryptocurrency and blockchains is continuing and their integration into global regulated markets is being further developed," Yankun Guo and Timothy Belevetz, attorneys at Ice Miller representing Windy, Abbott, Murphy, Peterson and Braverock, said in a statement emailed to us. 

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A securities fraud lawsuit was filed by the Securities and Exchange Commission against Hamazaspyan as well as the company he controlled, Beaxy Digital, Ltd., before it was taken over by Windy, for the sale of unregistered BXY tokens. A request for comment from Hamazaspyan was not immediately responded to.