Quebec City businessman believed to behind PlexCoin found guilty of contempt of court

Dominic Lacroix, a Quebec City businessman believed by Quebec’s financial watchdog to be behind the virtual currency PlexCoin, was found guilty of contempt of court.

What happened: Lacroix and his company DL Innov inc. failed to respect broad ex parte orders issued by the Quebec Financial Markets Administrative Tribunal on July 20th that forbade them 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.

“Public interest is at stake,” said Quebec Superior Court Justice Marc Lesage in a ruling issued mid-October. “Investor protection is primordial.”

Search warrants conducted at Lacroix’s home and the offices of DL Innov inc. revealed that:

  • Invoices dated May 24, 2017 registered for the domain names of,,, and, and were paid by a Visa card in the name of Dominic Lacroix. The invoices were found in Lacroix’s home
  • A list of more than 90,000 persons registered for PlexCoin’s presales were found at DL Innov
  • A text message found in a cell phone belonging to a DL Innov employee revealed that Lacroix sent a message that stated “Don’t forget that when you talk about plex it’s not me who is behind it. You don’t know who it is. You just saw it from somewhere. It must be super private.”

Why it matters: Financial regulators around the world are cracking down on initial coin public offerings (ICO). It has been a challenge. The AMF tried and failed. China, which recently shut down local bitcoin exchanges and banned ICOs, too is finding out that it’s easier said than done. “Both markets have bounced back quickly, proving that the decentralised nature of the market makes it resilient even to the heavy hand of authoritarian government,” reports the Financial Times.

More headaches in store for cryptocurrencies. The Financial Times also reports that British banks are shunning companies that handle cryptocurrencies, forcing many to open accounts in Gibraltar, Poland and Bulgaria.

What’s next: Lacroix will be sentenced on November 14, 2017.

Read more about how Canada is grappling with cryptocurrencies. Very little has changed since I wrote this award-winning story.

Canadian financial regulators provide guidance on cryptocurrency offerings

Canadian financial regulators, in lockstep with a growing number of jurisdictions, has put the cryptocurrency world on notice after confirming the potential applicability of Canadian securities laws to virtual currencies and related trading and marketplace operations.

Cryptocurrency offerings can provide new opportunities for business to raise capital and for investors to access a broader range of investments but they also raise investor protection concerns due to its volatility, lack of transparency, custody, liquidity and the use of cryptocurrency exchanges, notes the Canadian Securities Administrators in a recently published Staff Notice 46-307.

“Investors may (also) be harmed by unethical practices or illegal schemes, and may not understand the properties of the investment products that they are purchasing,” said the notice.

Cryptocurrencies like Bitcoin and Ether have become increasingly popular over the past decade which in turn has sparked an increase of cryptocurrency offerings such as initial coin offerings (ICO), initial token offerings (ITO) and sales of securities cryptocurrency investment funds. They can be purchased using either another cryptocurrency or a fiat currency.

But while many businesses market their coins or tokens as software products that are not subject to securities laws, the CSA staff notice warns that they may still be viewed as securities. Though new technology is involved, the existing definitions that establish whether an instrument is a security also apply to coins or tokens generated from an ICO or ITO, added the notice.

“The notice is helpful and welcome because it tells us that the securities regulators are looking into this,” said Manoj Pundit, a securities and capital markets lawyer with Borden Ladner Gervais LLP in Toronto. “At least they are speaking to the need of having a balanced approach to making sure that our regulations are enforced for the purposes of investor protection but at the same time recognizing that this is an innovative and legitimate business that is evolving in our economy.”

Heeding guidance from case law, and in particular from a Supreme Court of Canada decision in Pacific Coast Coin Exchange v. Ontario (Securities Commission), [1978] 2 S.C.R. 112, the CSA points out that it has found “many instances” of cryptocurrency offerings that constitute securities for the purposes of securities laws, including because they are investment contracts. Although the term “investment contracts” is not defined in legislation, the SCC in Pacific Coast Coin Exchange held it to be “an investment of money in a common enterprise, with a reasonable expectation of profits to be derived from the entrepreneurial efforts of others.”

The implications for cryptocurrencies to be considered as a security are significant. If cryptocurrencies offered through an ICO or ITO constitutes securities, they will need to file a prospectus, which provides details of the venture and the securities being offered, with securities commissions. There are however prospectus exemptions that allow issuers to offer securities on a private placement basis without a prospectus. While so far no business has used a prospectus to complete an ICO or ITO in Canada, the CSA anticipates that businesses looking sell coins or tokens “may do so” under prospectus exemptions.

Whitepapers, which may describe things such as the fundraising goal, the business, the project for which the capital is being raised, and how long the offering will remain open, are a form of disclosure but are not prospectuses and do not fulfill the disclosure requirements under Canadian securities laws, warns the CSA.

Moreover businesses completing ICOs or ITOs may be trading in securities for a business purpose (referred to as the business trigger) are required to register as a dealer or to seek an exemption from the dealer registration requirement. Whether or not an activity meets the business trigger is fact specific. But if individuals or businesses meet the business trigger, then they must comply with fundamental obligations to investors such as know-your-client and anti-money laundering requirements.

Cryptocurrency exchanges, online exchanges that allow investors to buy and sell cryptocurrencies, also come under scrutiny by the CSA. These exchanges operate across the world, in many cases without government oversight or regulation. But the CSA states that such exchanges that offer securities must determine whether it is a marketplace. That’s important because marketplaces are required to comply with the rules governing exchanges or alternative trading systems. “If an exchange is doing business in a jurisdiction in Canada, it must apply to that jurisdiction’s securities regulatory authority for recognition or an exemption from recognition,” states the notice. So far, no cryptocurrency exchange has been recognized in any jurisdiction in Canada or exempted from recognition.

But points out Simon Romano, a Toronto lawyer whose practice focuses on securities, public and private mergers and acquisitions, and corporate finance, the CSA notice makes it a point of encouraging these new businesses to use the regulatory sandbox, which allows firms to register and obtain exemptive relief from securities law requirements under a faster and more flexible process than through a standard application to test their products or services.

“There are costs to regulating things and it may discourage some people,” said Romano. “But regulatory authorities are willing to work with you to achieve goals in a carefully structured arrangement designed to protect investors. Hopefully it stops the Wild West, at least coming out of Canada.”

According to Pundit, the CSA staff notice is a step in the right direction.

“It’s good they came up with this staff notice because it shows they are on it, that they are considering these issues, that they’re open to consultation, and that they are granting some discretionary and exemptive relief in certain fact situations,” said Pundit. “It didn’t present anything that was adverse or that’s not conducive to allowing these innovative products to be made available to Canadian investors.”

This article originally appeared in The Lawyer’s Daily, published by LexisNexis Canada Inc.

Bitcoin’s promise lies under the hood

When Jillian Friedman completed her articling at McMillan LLP at the end of last year, the young Montreal lawyer attended by fortuitous happenstance a presentation at a networking event on Bitcoins, a controversial and extremely volatile virtual currency that exists only digitally, as computer code. Friedman, unshaken by the scandals and sordid headlines that has rocked the nascent Internet currency over the past year, was hooked, enticed by the notion of becoming a crypto-currency legal expert.

She is on her way. Heeding the advice of her mentors, Friedman is cultivating a clientele of bitcoin startups, a sector that allows her to share her knowledge and brief legal experience in financial services and general commercial law to an industry pushing for mainstream recognition. She has since become one of a handful of Canadian lawyers who has accepted payments in bitcoins, though she does not hold it in trust. “I would love for the legal community in Canada to understand that bitcoin is not some sketchy digital currency that is used to launder money – it is much more than that,” said Friedman, who is counsel to Bitcoin Embassy, a Montreal non-profit profit corporation founded to promote the adoption of Bitcoin and related crypto-technologies.

Continue reading “Bitcoin’s promise lies under the hood”