Crypto trading platform operating in B.C. illegally, securities watchdog says

A company operating a crypto trading platform branded as a "trusted" and "regulated exchange" has been violating British Columbia's securities laws and running an illegal exchange in the province, according to the B.C. Securities Commission (BCSC).

LiquiTrade Ltd., which is incorporated in the Cayman Islands, began operating a platform called LATOKEN in B.C. in 2020, the securities watchdog said, allowing users to trade popular digital assets such as Bitcoin and Ethereum.

LiquiTrade has never been registered under the Securities Act in B.C., the securities commission said in a report published this week. 

At the heart of the matter is whether LATOKEN users are actually trading crypto on the platform. 

It comes as authorities in Canada and around the world grapple with how to get crypto platforms to comply with legislation, says Peter Chow-White, a Simon Fraser University professor who extensively researches blockchain.

"It's a very complex space," he told CBC News Thursday. "Governments have really been struggling to figure out how to regulate this new decentralized financial system."

What is LATOKEN?

A LiquiTrade brochure markets LATOKEN as a "regulated exchange" and "top-40 most trusted exchange," according to the BCSC investigation. 

In a January 2022 blog post, it claimed to have more than 1.5 million traders, more than one million downloads on Google Play and over $300 million in daily turnover.

A BCSC investigator made his own LATOKEN account, bought crypto and made trades, according to the commission. 

He found that he didn't have control over his crypto assets. Instead, users have to request withdrawals from the platform.

"The investigator said he could not withdraw the crypto assets from the account except through the process provided by LiquiTrade, and he could not trade the crypto assets with another person except through the systems provided by LiquiTrade," the BCSC said in its report.

The commission found that LATOKEN users weren't, in fact, buying and selling crypto assets but buying rights to the crypto.

'Weren't actually trading Bitcoin'

"The assumption was that you weren't actually trading Bitcoin … but that you're trading some sort of image or a representation of it, but not the actual thing," Chow-White explained.

"This is a risky part of the space if they're not registered to deal with Canadian customers or British Columbia customers."

Germany's financial industry regulator also investigated LiquiTrade in 2022 and found the company is not authorized to conduct banking business or provide financial services in that country.

LiquiTrade did not participate in the BCSC hearing but was notified at every step of the process, according to the commission. The company did not make written submissions. CBC News reached out to LiquiTrade and LATOKEN but did not hear back.

The BCSC is now deciding which sanctions to impose on the company, which could include fines and banning it from the market. The decision is expected to take months.

But Chow-White says regulators' powers are limited, noting that LiquiTrade wasn't present at the BCSC hearing.

"There are plenty of other exchanges that are global that don't operate under the same rules that we have in British Columbia," he said.