Crypto trading platform broke B.C. securities law, regulator rules

A crypto trading platform incorporated in the Cayman Islands violated B.C. securities law, a provincial regulator has concluded.

A panel of the B.C. Securities Commission ruled Wednesday that LiquiTrade Ltd., which operates the platform LATOKEN, has been facilitating derivatives transactions without being registered and running an illegal exchange in B.C.

LiquiTrade did not respond to the BCSC’s allegations or participate in the hearing, but the panel concluded that the company had been given notice as required under the B.C. Securities Act.

The panel’s decision, which is available online, details the steps a BCSC investigator took to verify that the LATOKEN exchange was marketed to and accessible by B.C. residents. Those steps included creating an account and depositing some bitcoin, which the investigator later attempted to withdraw, but was unable to because he didn’t have the minimum amount required under the platform’s terms of use. 

“The investigator did not have control over the crypto assets that were notionally held in the account,” the panel’s decision reads.

“In particular, the investigator said he could not withdraw the crypto assets from the account except through the process provided by LiquiTrade, and he could not trade the crypto assets with another person except through the systems provided by LiquiTrade.”

These findings contributed to the panel’s conclusion that LATOKEN users aren’t actually buying and selling crypto assets, but rather contractual rights to those assets, which give them the right to request withdrawals from the platform in the future.

Such contracts are known as derivatives, and are subject to regulation by the BCSC.

By creating a derivatives trading market and promoting derivatives that trade on LATOKEN, LiquiTrade was operating as an exchange, despite not being registered under the Securities Act or authorized to operate such an exchange, the BCSC said in a news release Wednesday.

“Regardless of where they are located, platforms that facilitate Canadians’ buying and selling of crypto assets must register with provincial or territorial securities regulators and abide by certain conditions to help protect investors,” the release reads.

“The BCSC issued the notice of hearing against LiquiTrade as part of an ongoing, co-ordinated effort by Canadian securities regulators to ensure that crypto trading platforms comply with securities legislation in Canada.”

Now that the BCSC panel has ruled that LiquiTrade violated the Securities Act, the company and the BCSC’s executive director will have the opportunity to make submissions about what penalties LiquiTrade should face.

Sanctions could include fines or bans from market participation, according to the BCSC.

The Canadian Securities Administrators, of which the BCSC is a member, maintains a list of crypto trading platforms that are authorized to do business with Canadians. That list can be found on its website.