SEC claims Beaxy founder took ICO funds for gambling
The Securities and Exchange Commission (SEC) has filed a lawsuit against Beaxy, affiliated entities, and executives for operating an unlicensed securities exchange.
The lawsuit alleges that they engaged in the sale of an unregistered security with exchange token BXY, and also operated Beaxy as an unregistered securities exchange, failing to register as a broker or a clearing agency.
The SEC specifically alleges that BXY token was intended for ‘investors,’ that they would use the proceeds to help run Beaxy, and that token holders would benefit from Beaxy’s success. Furthermore, Beaxy allegedly told a salesperson with Chicago Crypto Capital LLC that they should target non-accredited investors in the US.
The SEC further claims that Beaxy founder Artak Hamazaspyan misappropriated at least $900,000 and used it himself. When this misappropriation was discovered, several other executives convinced Hamazaspyan to leave and Nicholas Murphy and Randolph Bay Abbott began operating the platform. Eventually, Hamazaspyan paid back $420,000 of the misappropriated funds.
Furthermore, the allegations claim that 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) and Dragonchain Inc.
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The SEC specifically alleges that Dragonchain was responsible for issuing the DRGN token which it further alleges was a security. The SEC also claims that Brian Peterson, who is also named in this suit, was in control of these various market-making entities.
At one point in 2020, it was decided to remove DRGN from listings. At this point, Dragonchain reapplied and attached to its application a memorandum that suggested that DRGN was not a security as long as Dragonchain did not participate in trying to create secondary marketplaces.
Confusingly, it appears that Dragonchain was actively in the process of soliciting secondary marketplaces like Beaxy when it provided this application.
After deciding to re-list DRGN Beaxy recommended it retain Windy Financial, one of the aforementioned market makers, to improve its liquidity on the platform.
This SEC lawsuit represents an increased emphasis on enforcement against exchanges for trading in unregistered securities and similar lawsuits could potentially threaten other cryptocurrency exchanges that are not appropriately registered with the SEC.
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