Quebec Rulings White-collar crimes

Alleged PlexCorps founder ordered to hand bitcoins to Quebec financial watchdog

A Quebec City businessman believed by Quebec’s financial watchdog and the U.S. Securities and Exchange Commission to be behind PlexCorps, a controversial cryptocurrency start-up accused of fraudulently selling up to millions of dollars’ worth of tokens, has been ordered to hand all bitcoins in his possession within 48 hours, ruled the Quebec Financial Markets Administrative Tribunal.

The Tribunal, in a ruling that will likely create precedence given the dearth of case law, also issued new freeze orders against Dominic Lacroix and his spouse — on top of the ones he already faces — in a bid to protect the public and prevent them from transferring or “squandering” the monies in their possession.

“Cryptocurrencies have changed the approach the Tribunal must adopt in order to protect the sums held in this manner because there exists no other third party like a financial institution to ensure the respect of decisions issued by a tribunal,” said the two-member panel of the Tribunal in a ruling issued on May 24th.

The Tribunal felt then “it had no choice but to innovate in the application” of article 249 of the Quebec Securities Act. The article stipulates that that the Autorité des marchés financiers (AMF), Quebec’s financial regulator, may for purposes of an investigation request the Tribunal to order a person to refrain from disposing funds, securities or other assets in his possession. By its own admission, the Tribunal noted that article 249 did not have enough bite. Lacroix, the Tribunal pointed out, repeatedly ignored orders against him. The Tribunal, as a result, turned to article 94 of the Act respecting the Autorité des marchés financiers which allows for the Tribunal to “take any measure conducive to ensuring compliance.”

“In the opinion of the Tribunal, this article gives it the possibility to adjust an order that would be adapted to the virtual reality of bitcoins,” said the Tribunal “It is clear that new technologies and new ways of holding assets pose important challenges to those responsible upholding the application of the law.”

Faced with an “exceptional situation,” the Tribunal adopted a “large and liberal” interpretation of article 94 that allowed it to take measures just as exceptional to protect investors. In this vein, the Tribunal “believes it is justified” to use the powers conferred to it under article 94 to order Lacroix to transfer bitcoins in his possession to the Quebec financial watchdog but only to safeguard it, and not as the AMF hoped to sell them.

Lacroix was found guilty last October of contempt of court for failing to adhere to broad ex parte orders issued by the Tribunal on July 2017 that forbade him and his company DL Innov Inc. from “engaging in activities for the purpose of directly or indirectly trading in any form of investment” covered by section 1 of the Quebec Securities Act, either in Quebec or from Quebec to outside of the province. On December 2017, he was sentenced last year to a two-month jail term and fined $10,000 for contempt of court while DL Innov was fined $100,000. Both decisions have been appealed.

In spite of the orders issued against him over the past year, the Tribunal found that Lacroix has used his entourage, including his spouse, his brother and his employees, to circumvent “by all means possible” the restraint orders issued against him.

On April 23, 2018, PlexCoin wrote in its Facebook page that “we assure to these people that 100% of the money used to buy their PlexCoin, by credit card, is still in the bank accounts and ready to be used to pay you back, we have proposed this option to the SEC and the AMF but we still have not received their agreement for the process.”

Yet the Tribunal notes that in spite of this statement, evidence revealed that amounts obtained from investors who used their credit cards to purchase PlexCoins were deposited in Lacroix’s bank accounts with CIBC and Tangerine and used personal purposes. Further evidence revealed that Lacroix and his spouse paid suppliers more than $100,000 to suppliers who worked on his luxurious $2.5 million home in Quebec City. As well, evidence also revealed that Lacroix and his spouse spent in the space of a couple of months 314.75 bitcoins to “maintain a luxurious lifestyle” in part by monies obtained from PlexCoin investors.

According to an AMF investigation, the PlexCoin initial coin offering generated US$3.3 million, 1,677 bitcoins. Testimony provided by an AMF investigator alleges that Lacroix still controls 464.22 bitcoins as of May 7, 2018. The value of each bitcoin at that date is estimated to be between $9,000 and $12,000. All told, according to the investigator, Lacroix has more than US$4 million in bitcoins.

“To ensure that the bitcoins held or under Lacroix’s direct or indirect control are preserved, the Tribunal has no choice under the circumstances but to order Lacroix to transfer to a third party, in this case the regulator, the AMF, his bitcoins,” said the Tribunal. “Prime facie evidence revealed to the Tribunal leaves it with no alternative in this case given the repetitive wrongdoing attitude demonstrated by Lacroix.”

The Tribunal also ordered the Bank of Montreal, Tangerine, Caisse Desjardins de Charlesbourg and the CIBC to refrain from disposing funds, securities or other assets belonging to Lacroix or his spouse.

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