Cryptocurrency consulting company CoinLaunch Corp. has agreed to pay more than $50,000 in penalties, costs and profits as part of a settlement with Ontario’s securities watchdog over allegations that the firm engaged in the unregistered trading of securities.
The agreement between CoinLaunch and the Ontario Securities Commission (OSC) also prohibits the firm from trading in or acquiring any securities or derivatives for five years.
The settlement is the latest in a series of enforcement actions being undertaken by the OSC, as regulators around the world grapple with the growing popularity of virtual currencies.
Regulators, including the OSC, have argued that many new token offerings have the characteristics of securities, and that selling them without making required disclosures constitutes a violation of securities laws.
In the case of CoinLaunch, the regulator said that, by advertising and offering a package of marketing and promotional services for initial coin offerings (ICOs), the Oakville, Ont.-based company engaged in the trading of securities without being licensed to do so. The services – which included helping companies solicit investors, taking new virtual currency offerings on road shows and advertising the offerings through marketing campaigns – were offered between March 1, 2018, and Sept. 30, 2018, according to the OSC.
“The key here is that CoinLaunch’s marketing program, taken as a whole, was instrumental in soliciting investors to buy these tokens, and that’s how CoinLaunch’s conduct came within the definition of ‘trading,’ ” said Evan Thomas, a Toronto-based lawyer at Osler, Hoskin & Harcourt LLP.
CoinLaunch also facilitated the offerings of two virtual currencies, which the OSC has deemed securities: the Buggyra Coin, launched by an off-road truck-racing team from the Czech Republic, and the EcoRealEstate token, whose sale was intended to finance the acquisition and development of a resort in Portugal.
CoinLaunch’s chief executive officer Reuven Cohen has agreed to ensure that any Buggyra Coin and EcoRealEstate tokens that the company received as compensation for its services will be rendered inaccessible, by deleting the private keys used to access the currencies.
Mr. Cohen declined to comment on the matter because the company has wound down its operations.
So far, there have been only a handful of instances where securities regulators in North America have gone after crypto consulting firms or companies engaged in cryptocurrency trading or promotion, Mr. Thomas said. One was a settlement between the U.S. Securities and Exchange Commission (SEC) and TokenLot, a website for buying and trading tokens. But, unlike CoinLaunch, TokenLot handled orders from investors, Mr. Thomas noted.
The SEC also settled with boxing promoter and former boxer Floyd Mayweather Jr. and music producer DJ Khaled for failing to disclose payments they received for promoting investments in ICOs, but that settlement was under the anti-touting provisions of U.S. securities laws.
“The lack of similar cases seems to have helped CoinLaunch in terms or reducing the penalty,” Mr. Thomas said. “As the reasons note, ‘We find that the administrative penalty is within a reasonable range in light of the limited history of penalties for non-registration cases involving cryptoassets.’ ”
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