How the American and Canadian Governments stopped an ICO Scam
Intro
Montreal, QC, Canada, July 20. 2017 — Canadian Financial authorities in Montreal declare PlexCorps, PlexCoin, DL, Gestio Inc, and founder Dominic Lacroix to be banned from trading directly or indirectly any form of investment. Declaration is ignored and PlexCoin ICOs in August 2017, raising $15M USD.
Washington DC, September 2017 — The Securities Exchange Commission creates the Cyber Unit Enforcement Division to crack on cyber-related misconduct involving Blockchain and ICO companies. Focusing on scams, hacks, threats, and fraud.
Yesterday, the SEC’s new Enforcement Unit announced charges against Plexcorp. They used this filing to freeze the $15 million USD gathered from the ICO, and the assets of owner Lacroix, and his partner Paradis-Royer.
Why PlexCoin?
PlexCorp is an interesting case for multiple reasons. For starters, founder Dominic Lacroix had previous issues with the Canadian Authorities. In December of 2011, the Financial authorities in Quebec launched penal proceedings against his company, Micro-Prêts inc. the charge was misrepresenting transactions in securities, and was fined over $35,000 CAD. The company funds were also frozen during this time.
Lacroix was a very scrutinized individual for violating securities law. Even with this, he decided to launch an ICO that the Canadian activities had strictly forbidden to launch. American authorities found out about the ICO and starting investigations.
PlexCoin satisfies the CSA and SEC guidelines for being fraudulent by promising guaranteed returns of 1,354 percent profit over the course of 29 days. They also sent unsolicited investment offers, unlicensed seller, and finally a pressure to invest with a timecap which makes them a prime target for enforcement action from the new unit. Their website is down but a video created by YouTube Channel Crytpo Freedom shows the old website as of August 3rd, 2017.
SEC & CSA on ICOs
In the US, the trade of securities and investment protection is regulated by the Securities Exchange commission. The SEC allows investors to invest, with warnings that sometimes the investment might be in securities that are not registered and that recovery of investment funds are not necessarily possible.
In Canada, the trade of securities is regulated independently by every province and territory. This means that there is a different regulator for all 10 provinces and 3 territories. To make things easier, these regulators communicate together through the CSA, Canadian Securities Administrators.
CSA is currently not very clear about what constitutes a security token and what does not. In fact, the Ontario Securities Commission (OSC) has asked ICOs to directly approach them, in order to determine their security status on a case by case basis.
Furthermore due to the money laundering act being amended to include virtual currencies, it is possible for Canadian authorities to enforce legal action on investors in unregistered securities in the form of virtual currencies, which the US does not do.
The CSA have taken a stronger stance ruling most tokens to probably be securities, while the SEC has determined that utility tokens do exist and there is a varied number of utility tokens and security tokens. Which is one of the reasons why one of the largest ICOs: KIK did not allow Canadian investors to participate, even though the company is based in Waterloo, Ontario.
The prevailing environment in Canada seems to be one of more skepticism, and unclear guidelines, however with the new cyber unit and the previous bulletin the SEC seems to have taken a clearer stance on ICOs. This is important because it is easier for legitimate ICOs to execute in the US and we recommend that the Canadian authorities follow quickly to provide clarity for the Canadian ICO market to keep pace with the one in the US.
Conclusion
This event has created a precedent. Financial authorities all over the world are now much more aware of ICOs, how they operate, and they will freeze assets and prosecute those who violate securities regulations. The fact that the SEC has created a specific Enforcement Division for Blockchain and ICOs shows that governments are taking the technology more seriously every day.
Laws differ heavily between different jurisdiction. Companies should take the right steps to make sure they are compliant with every geography their ICO is dealing with. As the field develops and more examples of scams, frauds, and issues arise, we will see clearer rules and regulations coming from the different legislators and authorities. Hopefully this will limit public’s perception that Most ICOs are Scams.
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