The Securities and Exchange Commission (SEC) has filed a lawsuit against Beaxy, its affiliated entities, and executives for operating an unlicensed securities exchange. The lawsuit alleges that Beaxy sold unregistered security with the exchange token BXY and operated Beaxy as an unregistered securities exchange.
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.
— U.S. Securities and Exchange Commission (@SECGov) March 29, 2023
Unregistered Security Sale and Unlicensed Exchange Operation
According to the lawsuit, Beaxy marketed the BXY token as an investment for “investors” who would benefit from Beaxy’s success. It allegedly failed to register as a broker or clearing agency and targeted non-accredited investors in the US. Beaxy founder Artak Hamazaspyan is accused of misappropriating at least $900,000 and using it himself. When the misappropriation was discovered, several other executives convinced Hamazaspyan to leave, and Nicholas Murphy and Randolph Bay Abbott began operating the platform.
Market-Making Firms and DRGN Token
The SEC also claims that several related firms, including Windy Financial, Future Digital, Braverock Investments, and Future Financial, acted as market makers to Windy, the entity operating Beaxy after Hamazaspyan separated. The allegations claim that Dragonchain Inc., responsible for issuing the DRGN token, which the SEC alleges was security, was actively soliciting secondary marketplaces like Beaxy. Brian Peterson, who is also named in the suit, was allegedly in control of these market-making entities.
Removal and Re-listing of DRGN Token
In 2020, Dragonchain decided to remove DRGN from listings. After it reapplied, it attached a memorandum that suggested DRGN was not a security as long as Dragonchain did not participate in trying to create secondary marketplaces. However, it appears that Dragonchain was actively soliciting secondary marketplaces like Beaxy when it provided this application. Beaxy recommended that Windy Financial be retained to improve DRGN liquidity on the platform after deciding to re-list DRGN.
Impact
The SEC lawsuit against Beaxy represents an increased emphasis on enforcement against exchanges for trading in unregistered securities. Similar lawsuits could potentially threaten other cryptocurrency exchanges that are not appropriately registered with the SEC. Moreover, the SEC’s actions aim to protect investors and ensure that cryptocurrency exchanges operate under the same regulatory framework as traditional securities exchanges.
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