The Securities and Exchange Commission (SEC) has taken legal action against the popular crypto asset trading platform, beaxy.com and some of its executives for violating securities laws. Specifically, the SEC accused Beaxy of operating as an unregistered securities exchange, broker, and clearing agency. The founder of the platform, Artak Hamazaspyan, was also charged with being involved in an unregistered token offering that raised $8 million.
In a statement provided by SEC Chairman Gary Gensler on Wednesday, the commission alleged that Beaxy and its affiliates undertook the functions of an exchange, broker, clearing agency, and dealer without registering with the commission or adhering to the regulations governing those activities.
While Artak Hamazaspyan is still facing litigation charges, some individuals named in the complaint have agreed to pay civil penalties, without admitting or denying allegations. By taking this action, the SEC is sending a powerful message to the cryptocurrency community to follow the established rules and comply with regulations.
SEC’s Approach to Unregistered Securities Offerings
The SEC has long emphasized the need for companies that plan to make securities offerings to register with the SEC or qualify for an exemption from registration. These regulations provide essential protections for investors and help ensure that companies do not engage in fraud or other abusive practices.
In the case of Beaxy, the SEC alleges that it conducted an unregistered securities offering by selling a token called BXY in 2018. The regulator argues that this token is a security because it meets the definition of an investment contract, which triggers the application of securities laws.
To classify as an investment contract, a transaction must pass the Howey Test, which requires showing that: (1) the investor has invested money in a common enterprise; (2) the investor expects to make profits from the investment; (3) the investment of money is primarily reliant on the efforts of others; and (4) there is a reasonable expectation of profit derived from the entrepreneurial or managerial efforts of others.
According to the SEC’s complaint, Beaxy met all these conditions since it promised investors that it would use the funds raised during the token offering to develop and operate a crypto asset trading platform. Additionally, the company told investors that the value of the token would increase as more people used its platform, creating profits for investors.
Beaxy and its affiliates also distributed marketing materials and made public statements suggesting that the token was a profitable investment, even promising investors that they would receive a share of the profits generated by the platform.
The penalties Beaxy and its executives are facing
The SEC accused Beaxy of violating Sections 5(a) and 5(c) of the Securities Act of 1933 by conducting an unregistered securities offering. The regulator further asserted that Beaxy’s failure to register as a securities exchange, broker, or clearing agency subjected it to additional violations of Section 5 of the Securities Act, as well as Section 15(a) of the Securities Exchange Act of 1934.
The SEC’s lawsuit seeks to obtain injunctive relief, disgorgement of profits, civil penalties, and other remedial measures. Beaxy and some individuals named in the lawsuit have agreed to pay the civil penalties without admission or denial of the allegations.
Beaxy’s response to the lawsuit
Beaxy has not yet publicly commented on the matter, but it’s worth noting that it’s not the first cryptocurrency trading platform to face legal issues with the SEC. In the past, the commission has brought charges against other companies such as EtherDelta and Bitfinex for conducting unregistered securities offerings.
It’s still unclear what the long-term implications of these actions are on the cryptocurrency industry, but for now, they reinforce the need for regulatory compliance. Cryptocurrency companies that are planning to engage in securities offerings should seek legal counsel to understand the requirements of the applicable laws and regulations.
The SEC’s legal action against Beaxy is a further reminder to the cryptocurrency industry that it must comply with securities laws and regulations. It is also a call to investors to be vigilant and conduct proper due diligence before investing in any token or ICO offering. The consequences of failing to comply with securities laws can be severe, including hefty fines, injunctive relief, and other sanctions. Ultimately, it’s in the best interest of everyone involved, including the investors and industry participants, to play by the rules and maintain the integrity of the market.