SEC Charges Crypto Trading Platform and Its Executives for Unregistered Operations and Misappropriation of Funds

The world of crypto was shook on March 29, 2023 when the Securities and Exchange Commission took action against and the executives. The charges? Failing to register with the National Securities Exchange, Broker, and Clearing Agency. The storm did not stop there. Artak Hamazaspyan, founder of Beaxy, and Beaxy Digital, Ltd., under his control, are also accused of raising $8 million through an unregistered Beaxy token offering (BXY). Hamazaspyan, the founder of the platform, was also accused of misappropriating $900,000. This included money for gambling. Market makers who operate on the Beaxy Platform have also been charged as unregistered traders.

The plot thickens

According to SEC’s complaint against Nicholas Murphy and Randolph Bay Abbott through their company Windy Inc. they have been manipulating behind the scenes from October 2019 onwards. The Beaxy Platform was a web-based platform for trading crypto assets that were offered and sold in securities. What’s the catch, though? Windy’s Beaxy Platform is accused of violating sections 5, 15(a) and 17A of Securities Exchange Act of 1934.”Exchange Act”). How?

  • By bringing the securities orders of multiple sellers and buyers together using established non-discretionary ways under which these orders interacted. The buyers and sellers who entered such orders agreed on the terms of a transaction and therefore should have been registered as a exchange.
  • The clearing agency should have been registered for the purpose of acting as an intermediary to make payments and deliver goods based on matching buy and sell orders, and maintaining custody of assets belonging to customers.
  • The broker should be a person who regularly engages in the business to effect transactions in crypto assets offered and sold by others as securities.

Change of Guard

Murphy and Abbott forced Hamazaspyan’s resignation after the BXY was unregistered and investor assets were misappropriated. The Beaxy Platform was still operated by Windy. The Exchange Act Section 20(a), which imposes liability on control persons, arose from their operation of an unregistered clearing agency, broker and exchange in violation of Sections 5(a) and 15(a) and Section 17A.

The Web of Deceit Spreads

Windy has entered into an agreement to provide BXY with Brian Peterson’s companies (Braverock Investments LLC. Future Digital Markets Inc. Windy Financial LLC. Future Financial LLC. Collectively, the Braverock Entities). In May 2020, one company entered into a similar contract for another crypto asset. Peterson and Braverock Entities were charged with being unregistered dealers for violating Section 15(a). of the Exchange Act.

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What is the Glimmer of hope?

Windy, Murphy Abbott and Peterson agreed today to undertake certain undertakings. These include ceasing to operate as an unregistered clearing agency, exchange, broker and dealer, shutting down the Beaxy Platform, providing an accounting for customers, transferring customer funds and assets to each customer, and destroying all BXY that Windy has in its possession.

Penalties and Consequences

Windy, Murphy Abbott Peterson and Braverock Entities, without admitting or disputing the allegations contained in the Complaint, have agreed to permanent orders prohibiting future violations of securities laws as alleged in this complaint, and to pay civil penalties. The amount of the penalty reflects the level of cooperation that the staff received during the investigation from the parties who settled.

SEC vs Hamazaspyan

The SEC has not dropped its charges of Hamazaspyan’s securities fraud. This is in violation of Section 10b of Exchange Act, Rule 10b-5 and Section 17.a of Securities Act of 1933.”Securities Act”Hamazaspyan et Beaxy Digital were also charged with violating Section 5(a), (c), and (d) of Securities Act by offering BXY without registration.

The Investigation Team

Arsen Ablaev and Christine Bautista Jeon of the Crypto Assets and Cyber Unit conducted and supervised SEC’s investigation. Alyssa Qalls will be leading the SEC litigation.

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