Crypto Exchange Beaxy Shuts Down in Wake of SEC Lawsuit

Cryptocurrency exchange, Beaxy, has shut down its operations after over three years of launching into the market. The exchange ceased its operations in the wake of a lawsuit from the United States Securities and Exchange (SEC) which charged the platform and its executives for operating an unregistered exchange, brokerage and clearing agency.

In a statement published on its website on Tuesday, Beaxy said it was immediately suspending its services on the trading platform “due to the uncertain regulatory environment surrounding our business.” Beaxy launched its crypto trading services in June 2019 with the plan to offer its services in 43 states in the United States and in 184 other countries.

SEC Charges Beaxy’s Founder, Others

However, the SEC in a press statement released on Wednesday said it charged Artak Hamazaspyan, the crypto exchange’s Founder, and his company, Beaxy Digital Limited, for raising $8 million in an unregistered offering of the Beaxy token (BXY). The securities regulator further alleged that Hamazaspyan “misappropriated at least $900,000 for personal use, including gambling.”

Today we charged the crypto asset trading platform https://t.co/ykFkM2s0wY and its executives for failing to register as a national securities exchange, broker, and clearing agency, and we charged market makers operating on the Beaxy Platform as unregistered dealers.

In addition, the SEC charged two managers, Nicholas Murphy and Randolph Bay Abbott, for operating Beaxy Exchange as an unregistered exchange, broker and clearing agency through Windy Inc. According to the regulator, Murphy and Abbot took over the reins of Beaxy Exchange in October 2019 after convincing Hamazaspyan to resign as a result of the unregistered sale of BXY and the misappropriation of customer funds.

Furthermore, the US securities regulator in a complaint filed before a district court in Illinois, accused Brian Peterson and his companies of acting as market markers for Beaxy; hence, acting as unregistered dealers. The companies are Braverock Investment, Future Digital Markets, Windy Financial and Future Financial.

According to the SEC, Windy signed an agreement with Peterson and his companies in December 2019 to provide market marking services for BXY. In May 2020, one of the firms signed a similar agreement for a different digital asset.

SEC Requires Separate Registrations

Speaking on the case, Gurbir S. Grewal, the Director of the SEC’s Division of Enforcement, noted separate registration requirements exist for organizations that want to operate as exchanges, brokers and clearing agencies. These requirements are targeted at protecting investors and ensuring checks and balances among the various firms.

“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,” Grewal explained.

SEC is incrementally building a body of legal theories to target crypto asset intermediaries. It’s not only focused exchanges. Beaxy complaint shows SEC is scrutinizing market making arrangements as broker-dealer activity and certain custody arrangements as clearing activity.

In response to the lawsuit, the SEC said Windy, Murphy, Abbot and Peterson have agreed to shut down the cryptocurrency trading platform, refund all customers and destroy “any and all BXY in Windy’s possession.”

The parties, without admitting or denying the allegations, have also agreed to pay various amounts in penalties to the SEC. This includes $79,200 in civil penalties to be paid by Windy, Abbot and Murphy. Moreover, the SEC said it will continue its litigation against Hamazaspyan for securities fraud, and both the Founder and Beaxy Digital for the unregistered offering of BXY.

Beaxy Promises to Open Asset Withdrawal

Meanwhile, in its announcement, Beaxy said it will make all customer assets on its platform available for withdrawal “within 24 hours after all user orders are cancelled and balances verified.”

“Trading on the platform has been halted effective immediately to simplify the withdrawal and reconciliation process. We strongly advise you to withdraw any remaining assets within 30 days to avoid unnecessary complications and delays,” Beaxy announced.

The SEC's action against Beaxy comes a week after the regulator charged crypto entrepreneur Justin Sun and three of his companies with engaging in wash trades with the Tronix (TRX) token. Additionally, the financial watchdog charged eight American celebrities for promoting TRX and/or BitTorrent tokens without disclosing that they were paid to do so.

In a separate development, the US derivatives regulator also recently brought charges against Binance for operating an illegal digital asset derivatives exchange. Moreover, the watchdog accused the world's largest cryptocurrency exchange of committing “numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations." However, Binance's CEO in its reaction described the lawsuit as an "incomplete recitation of facts."

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