The legal classification of cryptoassets in securities law has been brought into question following a ruling by the Quebec Financial Markets Administrative Tribunal that held that the nature of a crypto and its potential classification as an investment contract may vary depending on the “economic reality” surrounding each transaction, underscoring the need for Canadian and Quebec legislators to modernize the regulatory approach to crypto, according to legal pundits.
The decision, depicted as a game-changer by legal experts, will hearten so-called “finfluencers” or social media financial influencers as it held that offering subscriptions to private groups on social media to receive buy-sell signals for crypto assets does not constitute an investment contract. The ruling also underlines that in cases that are not ex parte, the applicable burden of proof in cases seeking conservatory measures requires conclusive and preponderant evidence, and not prima facie evidence as Quebec’s financial watchdog maintained.
“This decision is definitely a game-changer,” remarked Noah Billick, director of regulatory, funds and compliance at Montreal boutique law firm Renno & Co, specializing in emerging technology law, particularly blockchain and crypto. “A decision like this challenges a lot of the kind of accepted positions that regulators have put out, and that’s good. It’s going to provoke a dialogue, and I think it’s also going to provoke some regulatory change.”
David Durand, a Montreal lawyer with Durand Lawyers, specializing IP and technology law, says the ruling is a step in the right direction. Durand has long maintained that crypto-assets should not fall under the guise of investment contracts. In a submission he made several years ago to the Financial Stability Board, an international body that monitors and makes recommendations about the global financial system, Durand asserted that given the nature of crypto-assets, they do not fit the definition of a security.
“The fact that securities regulations would have scant effect in protecting users on decentralized networks makes it evident that defining crypto-assets as a security would provide ineffective regulatory enforcement in this respect,” said Durand in a position he still stands by today. He added that overreaching securities regulation on the crypto-asset regime would “likely create a system where onerous requirements are placed on users of such assets, with an end result of suppressing innovation” in financial technology and financial capital to leave Canada seeking more favourable environments.
Erwan Jonchères, the founder of Montreal-based Satoshi Legal, maintains there is a “great need” for clear rules, given that crypto industry is important for Quebec and Canada. “What makes things complex in Canada for the crypto ecosystem is the lack of clear guidelines, such as European standards, which would allow well-intentioned companies in the ecosystem to develop safely within an established framework,” said Jonchères.
Ron Morrow, executive director of payments at the Bank of Canada, too recently called for federal and provincial regulators to work “quickly and collaboratively to evolve” the regulatory frameworks “while balancing the twin objectives of efficiency and safety” Governments are moving to regulate stablecoins and other cryptocurrencies so consumers can reap their benefits and be protected from credit and liquidity risks, noted Morrow in a speech given in mid-September in Ottawa. Many jurisdictions worldwide either have, or will soon have, a regulatory framework for crypto assets, said Morrow.
Digital assets however are mostly overseen by provincial securities and derivatives regulation while the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) regulate virtual currency exchange or transfer services. “Canada should also weigh the merits of federal stablecoin regulation, similar to what other countries have done,” added Morrow.
The case dates back to November 2024 when the Autorité des Marchés Financiers (AMF), Quebec’s securities regulator, filed a motion seeking prohibition and blocking orders against Alexandre Gagnon, the sole shareholder, director and officer of a numbered company that also goes by the name of “Richie the bull.” In essence, the respondents acted primarily as financial influencers on social media in connection with cryptocurrencies. The AMF alleged breached sections 195.2 and 199.1 of the Quebec Securities Act by manipulating or attempting to manipulate the price or value of at least 30 cryptoasset tokens between January and July 2023, using a promotion and dumping tactic better known as “pump and dump.”
Quebec Financial Markets Administrative Tribunal adjudicator Jean-Pierre Cristel granted two of the prohibitions requested by the AMF, dealing with unregistered brokerage activities. The Tribunal prohibited the finfluencers from trading in investment contracts, acting as advisors, and acting as investment fund managers.
But more significantly, the Tribunal found that the finfluencers did not violate the Securities Act by engaging in crypto asset market manipulation or “pump and dump.” After highlighting that the legislator has not explicitly included or defined the term cryptoassets in the Securities Act, Cristel held that an investor who trades cryptoassets does not enter into an investment contract, and their manipulation cannot constitute a violation of the Securities Act because these assets are not securities.
Cryptoasset is not an investment contract
The Tribunal emphasized that an “investment contract” contains several specific criteria laid down by the legislator, including a contract by which a person commits themselves, in the hope of a profit that is held out to them, to participate in the risk of a business venture through a contribution or loan of any kind. All of these criteria must be met, including a contribution to a business with genuine economic substance, for the provisions of the Securities Act to apply, held Cristel. That was not the case here, added Cristel.
“The important point here is that the Tribunal says a cryptoasset is not an investment contract,” said Durand. “However, when we criticize the act of trading an asset, we are referring to the investment contract in relation to the person and not the object or the very nature of the crypto asset. The implications are that we are moving in the right direction in terms of the fact that crypto-assets were not an investment contract.”
But if a cryptoasset is purchased from a promoter, then an investment contract might potentially exist because the buyer may be trying to participate in the underlying business or venture by contributing funds. However, when a person purchases the same cryptoasset from another holder of the cryptoasset, there is no investment contract because the contribution does not go to finance the business or venture. The same holds true for buyers of cryptoassets through decentralized online trading platforms.
“In the Tribunal’s view, these are not transactions involving investment contracts within the meaning of the Securities Act, but rather simple purchases/sales of cryptoassets for essentially speculative purposes,” held Cristel in Autorité des marchés financiers c. Gagnon, 2025 QCTMF 56, a decision issued on August 22, but is only now beginning to make waves, as one pundit put it.
“If there’s a peer-to-peer trade and the underlying crypto asset isn’t a security, that is not an investment contract. That is, therefore, not caught by the Securities Act, therefore can’t be subject to the manipulation rules,” said Billick. “That’s a pretty big deal. It means that the activity is outside the jurisdiction of the provincial securities regulators, and that their assertion that they can bring enforcement on that basis is wrong. And I think it’s important.”
What is also notable is that the Tribunal was informed by American developments, added Billick. The Tribunal stressed that American legislation and case law is currently undergoing rapid and significant change, particularly with the recent adoption by the U.S. legislature of the Genius Act, which aims to enable and regulate activities surrounding the use of cryptoassets such as stablecoins. The Tribunal also heeded guidance from the 2023 decision in SEC v. Ripple Labs inc. which establishes that the nature of a cryptoasset may vary depending on the economic reality surrounding a transaction involving that crypto asset. In other words, the Ripple decision distinguishes the existence of an investment contract between a contribution to cryptoasset promoters for the purpose of an underlying venture and where individuals purchase cryptoassets from other investors on a decentralised online trading platform.
In the “context of rapid change in a significant sector of the financial market, the Tribunal is of the opinion that it must exercise caution in its decisions relating to cryptoassets, in particular to avoid unexpectedly blocking the evolution of the financial and commercial sector, which is increasingly interacting with cryptoassets, with the aim of allowing the legislature, in light of these developments, to take the decisions it deems appropriate to promote the competitiveness and integrity of the financial market while adequately protecting the investing public,” said Cristel.
“There really has been a sort of failure of leadership in Canada in terms of creating law, and historically the way this stuff has been interpreted has been based on these U.S. interpretations, and in the absence of a clear Canadian position on this stuff, they kind of have to look to the U.S.,” said Billick.
In a finding that surprised legal experts, social media financial influencers did not contravene the Securities Act by offering the public the “opportunity” to subscribe to private social media vehicles run by the finfluencers for a subscription fee to receive buy and sell signals on cryptoasset tokens. Investors “clearly have the choice of whether or not” to follow the recommendations, said the Tribunal. “The modern world would be deprived of an important source of information” if it were to deem membership fees required by financial publications currently available to the public, often by unregistered financial experts as a contribution to an investment contract, held the Tribunal.
That finding will have a bearing in future cases because it will be cited as a defence, noted Durand. According to Billick, the finding is a “very big deal” because “there’s a lot of people doing this paid signal stuff, and there was a lot of uncertainty about it. Here’s what I think is really important – the context really matters. A secondary trade on a decentralized exchange does not trigger securities, but it still likely, almost certainly, falls under anti-money laundering rules. There are other rules that apply.”
The AMF, while it declined to comment about the case, stated that it does not to intend to appeal the decision.
Billick was hoping that the matter was going to be appealed as there is little case in Canada over the definition of investment contracts. “I’m hoping this continues to get litigated, and ultimately it goes to the Supreme Court of Canada or at least the Quebec Court of Appeal to get some good guidance that lawyers can rely on because right now it’s a little vague,” said Billick.
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This story was originally published in Law360 Canada.
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