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OSC Charges Liquid Marketplace Executives with Fraud

Regulatory Enforcement | Jun 25, 2024

Liquid Marketplace - OSC Charges Liquid Marketplace Executives with Fraud

Image: Liquid Marketplace logo

The OSC accuses Logan Paul's Liquid Marketplace executives of misappropriating investor funds.

The Ontario Securities Commission (OSC) has charged leadership at Liquid Marketplace, including co-founders Logan Paul, Ryan Bahadori, and Amin Nikdel, with misappropriating investor cash. This enforcement case uncovers a potential multi-layered fraud in the cryptocurrency business. Liquid Marketplace, which opened in April 2022, provided fractional ownership of rare collectibles via tokenization. The platform, co-founded by Logan Paul, gained prominence for its novel approach to collectibles trade.

OSC's Allegations

The OSC's investigations highlights serious issues:

  • According to the OSC, the executives misappropriated about $3 million of the more than $10 million raised through the sale of common shares and promissory notes for personal gain. Hidden payments were made to shell businesses controlled by executives, and interest-free loans were acquired from investor funds but never repaid.

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  • The OSC determined that the LMP Tokens sold, which reportedly represented fractional ownership of items, misled token purchasers as they did not convey legal ownership, and the items were neither authenticated nor insured, as represented. Token sales conducted under false pretences yielded around $2.7 million.
  • The platform failed to comply with registration and prospectus requirements, depriving investors of critical protections.
  • Additionally, deceptive comments were provided to the OSC during its inquiry, exacerbating the regulatory violations.
  1. The OSC Stated: (view application for enforcement proceedings doc)

The Respondents misappropriated approximately $3 million, including through hidden payments to shell companies, for the personal enrichment of the LMP Principals... LMP, Bahadori and Nikdel made false and misleading statements to Token Purchasers including that LMP Tokens represent legal ownership in underlying collectibles, and that the collectibles themselves had been authenticated, appraised and insured... LMP sold and facilitated the trading of LMP Tokens without complying with the prospectus and registration requirements of the Act, thus depriving investors of important safeguards to protect them from unscrupulous and fraudulent conduct.

Investors who were attracted to the site by its high-profile endorsements, are now facing enormous financial losses and a breach of trust. The charges have raised concerns and disillusionment among users, who believe the platform's promises were misleading.

Outlook

This decision establishes a precedent for future regulatory enforcement in the quickly evolving digital asset sector.

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As the digital asset market expands, such regulatory steps will be critical to maintaining its integrity and sustainability. Before investing in digital assets, investors should exercise caution and conduct serious research and due diligence before proceeding.


NCFA Jan 2018 resize - OSC Charges Liquid Marketplace Executives with FraudThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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