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Ontario regulator clamps down on Poloniex crypto exchange

The Toronto Star | | May 25, 2021

OSC - Ontario regulator clamps down on Poloniex crypto exchangeThe Ontario Securities Commission fired a warning shot Tuesday across the bow of unlicensed exchanges selling cryptocurrency to Canadians, charging one of the largest with breaching Ontario securities regulations.

Poloniex, a Seychelles-based crypto exchange once owned by Goldman Sachs-backed start-up Circle, broke securities regulations by trading securities without registration, not complying with prospectus disclosure requirements, and engaging in activity “contrary to the public interest,” according to OSC investigators.

In its statement of allegations, the OSC said Poloniex was charged after ignoring an April 19 deadline to start discussions about how to comply with the rules. The crypto exchange didn’t return the Star’s messages seeking comment.

“Entities such as Poloniex, which flout this compliance process, expose Ontario investors to unacceptable risks and create an uneven playing field,”

said the statement of allegations, which called for up to $1 million in fines and trading bans for Poloniex.

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Poloniex is just one of thousands of online crypto exchanges where investors can buy and sell cryptocurrencies such as bitcoin and dogecoin. It’s unclear how long Poloniex has been letting Canadian customers use its platform.

The crackdown is a move that investor advocates, lawyers, and finance experts say was urgently needed as more Canadians — including many unsophisticated investors — are putting their money at risk by tapping into the volatile investment craze.

“It’s a potential disaster for investors who frankly might not be sophisticated enough to understand the risks. This won’t be the last time regulators do something like this, either,”

said Matt Burgoyne, a partner at Calgary-based McLeod Law, who runs the firm’s cryptocurrency practice.

Andreas Park, a finance professor at the University of Toronto’s Rotman School of Business, said cryptocurrencies are already a volatile investment, pointing to the fluctuations seen by the world’s best-known cryptocurrency bitcoin. Earlier this year, that digital currency rose higher than $63,000 U.S., but is now hovering just over $37,000. Throw in futures trading and borrowing, and it’s a potentially costly mix, said Park.

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Tuesday’s move comes two months after the OSC issued a warning to cryptocurrency exchanges that they needed to follow securities regulations if they wanted to keep selling to Ontario investors. In their news release Tuesday, the OSC said 70 of the exchanges have since initiated “compliance” discussions with the OSC and other Canadian regulators. Just one exchange — controlled by online brokerage Wealthsimple — has come up with a full compliance plan blessed by the OSC.

The OSC has scheduled an initial hearing into the allegations June 18, but a full “hearing on the merits” — the regulatory equivalent of a trial — might not come for months. After a full hearing, a panel of OSC commissioners would rule on the allegations, and potentially levy penalties. Poloniex could also reach a settlement agreement with the OSC.

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