The Canadian Securities Administrators (CSA) have stated that merely providing users with a contractual right or claim to a crypto asset could subject the exchange to sanctions. The CSA stated that transactions without immediate delivery constitute derivatives sales. Even where the custodied asset is commonly considered as a commodity such as Bitcoin, it could be classified as the sale of debt or an investment contract, which is a transaction that falls within the country’s securities laws. Exchanges that facilitate “immediate delivery” will be exempt according to the CSA.
Exchanges that do not comply could be delisted from a Canadian exchange.
Canada has had two major exchange scandals in the past year. One of them involved cyber currency. In November, the British Columbia Securities Commission seized the Einstein Exchange after users complained that they could not access their funds. Accountancy firm Grant Thornton said that the exchange’s wallet had been almost entirely drained. The Einstein Exchange had billed itself as a trustworthy alternative to other cryptocurrency exchanges, where customers lost millions to various scams and hacks. But then, Canadian authorities have accused the bank of vanishing with $16 million in investors’ money and locking their offices.
In a Nov. 1 filing, the British Columbia Securities Commission claimed Einstein Exchange suddenly shut down without returning more than $16 million in customers’ money (including nearly five times more U.S. dollars than Canadian, suggesting the exchange was popular stateside). When a BCSC investigator visited the company’s Vancouver headquarters, he discovered the offices on lockdown. None of Einstein Exchanges’s phone numbers were operational, according to the filing. Complaints of missing money were common with Einstein Exchange. But previously, the company had dismissed them as evidence of a booming business. Last January, when cryptocurrency prices skyrocketed, Einstein Exchange claimed to see a surge of business—and with it, a backlog of orders.
Jeffrey Newman represents whistleblower including Securities & Exchange or international whistleblowers in financial crimes. His email address is Jeff@JeffNewmanLaw.com or call 617-823-3217