SEC Charges Crypto Trading Platform Beaxy and its Executives for Operating an Unregistered Exchange, Broker, and Clearing Agency
Market makers separately charged as unregistered dealers
FOR IMMEDIATE RELEASE
Washington D.C., March 29, 2023 —
The Securities and Exchange Commission today charged the crypto asset trading platform beaxy.com (the Beaxy Platform) and its executives for failing to register as a national securities exchange, broker, and clearing agency. The SEC also charged the founder of the platform, Artak Hamazaspyan, and a company he controlled, Beaxy Digital, Ltd., with raising $8 million in an unregistered offering of the Beaxy token (BXY) and alleged that Hamazaspyan misappropriated at least $900,000 for personal use, including gambling. Finally, the SEC charged market makers operating on the Beaxy Platform as unregistered dealers.
According to the SEC’s complaint, since October 2019, Nicholas Murphy and Randolph Bay Abbott, through the company they managed, Windy Inc., maintained and provided the Beaxy Platform as a web-based trading platform that facilitated buying and selling of crypto assets that were offered and sold as securities. The complaint alleges that Windy, through the Beaxy Platform, violated the Securities Exchange Act of 1934 because it:
- Brought together the orders for securities of multiple buyers and sellers using established, non-discretionary methods under which such orders interacted, and the buyers and sellers entering such orders agreed to the terms of a trade, and thus should have registered as an exchange;
- Acted as an intermediary in making payments and deliveries upon matching sell and buy orders and maintained custody of customer assets, and thus should have registered as a clearing agency; and
- Was regularly engaged in the business of effecting transactions for the account of others in crypto assets that were offered and sold as securities, and thus should have registered as a broker.
The SEC’s complaint also alleges that, after Murphy and Abbott convinced Hamazaspyan to resign following the unregistered offering of BXY and the misappropriation of investor assets, the two continued the operation of the Beaxy Platform through Windy, and as such are also liable for operating an unregistered exchange, broker, and clearing agency.
Additionally, the complaint alleges that, in December 2019, Windy entered into an agreement with Brian Peterson and his companies — Braverock Investments LLC, Future Digital Markets Inc., Windy Financial LLC, Future Financial LLC (collectively, the Braverock Entities) — to provide market making services for BXY, and in May 2020, one of these companies entered into a similar market making agreement for another crypto asset security. By doing so, the complaint alleges that Peterson and the Braverock Entities acted as unregistered dealers.
“We allege that Beaxy and its affiliates performed the functions of an exchange, broker, clearing agency, and dealer without registering with the Commission and complying with clear, time-tested rules governing those activities,” said SEC Chair Gary Gensler. “Our securities laws for decades have served to protect investors, make capital formation easier and cheaper, and improve our markets. 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.”
“To protect investors, there are separate registration requirements for exchanges, brokers, and clearing agencies, with each essentially acting as a check on the other,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “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.”
Pursuant to the Consents filed in the U.S. District Court for the Northern District of Illinois today, Windy, Murphy, Abbott, and Peterson have agreed to perform certain undertakings, including ceasing all activities as an unregistered exchange, clearing agency, broker, and dealer; shutting down the Beaxy Platform; providing an accounting of assets and funds for the benefit of customers; transferring all customer assets and funds to each respective customer; and destroying any and all BXY in Windy’s possession.
Without admitting or denying the allegations in the complaint, Windy, Murphy, Abbott, Peterson, and the Braverock Entities have agreed to permanent injunctions prohibiting them from future violations of the securities laws alleged in the complaint and to pay civil penalties. Specifically, Windy, Abbott, and Murphy agreed to pay a total of $79,200 in civil penalties; Peterson agreed to pay a civil penalty of $6,600; and the Braverock Entities agreed to jointly and severally pay a penalty of $80,000. In addition, Windy agreed to pay $10,779 in disgorgement plus prejudgment interest, and the Braverock Entities agreed to jointly and severally pay $52,000 in disgorgement plus prejudgment interest. The penalty amounts reflect the cooperation the staff received from the settling parties during the investigation.
The SEC is litigating its charges against Hamazaspyan for securities fraud and against Hamazaspyan and Beaxy Digital for the unregistered offering of BXY.
The SEC’s investigation was conducted by Arsen Ablaev, Christine Bautista Jeon, and Craig McShane and supervised by Amy Flaherty Hartman, Jorge G. Tenreiro, and David Hirsch of the Crypto Assets and Cyber Unit. The SEC’s litigation will be led by Alyssa Qualls.