As Bitcoin and other cryptocurrencies surged in value this fall, the top market regulator in the United States created a new unit to monitor this fast-growing but little understood corner of the financial world.
Earlier this week, the Securities and Exchange Commission’s new cyber unit filed charges for the first time. Its target: a Quebec cryptocurrency company that was promising investors returns of 1,354 per cent in 29 days or less.
In court filings, the SEC alleged PlexCorps raised $15 million since August through an initial coin offering (ICO) that potentially fleeced “tens of thousands of investors.” It claims PlexCorps’s founder, Dominic Lacroix, and his girlfriend, Sabrina Paradis-Royer, used the money to finance “extravagant personal expenditures.”
The charges underscore the dangers that exist to efforts in Quebec, and Canada more generally, to establish global leadership in the digital currency market, which is now capitalized at more than $200 billion (up from $40 billion at the beginning of 2017).
Already Montreal and Toronto have carved out a reputation as developing hubs, thanks to their concentrations of high-tech knowledge. Montreal’s allure is further helped by cheap electricity and cold winters, two assets for the energy-sucking computers required by coin-mining operations.
But industry insiders worry that the dizzying rise in value of cryptocurrencies and an uncertain regulatory environment are attracting unsavoury elements.
“Cryptocurrency or blockchains are a new phenomena that, with the rise in value, is attracting many fraudsters and scammers,” said Jonathan Bertrand, who runs Technologies D-Central, a bitcoin mining operation in Montreal.
“We are witnessing numerous scams and are trying our best to inform the public.”
Currency or security?
Cryptocurrency markets are often described as the Wild West of the financial world. Currency values oscillate between extremes, and transactions don’t benefit from the same protections as fiat currencies that are backed by a government.
Contributing to the volatility is confusion over whether cryptocurrencies are currencies or securities.
If currency, a virtual money company faces fewer disclosure obligations when conducting an ICO.
But regulators in both Canada and the U.S. indicated…