The Ontario Securities Commission (OSC) is alleging that Toronto-based crypto trading platform Coinsquare Ltd. was inflating its reported trading volumes, and that it retaliated against an internal whistleblower who raised concerns about that practice.
The OSC announced that it will hold a hearing on July 21 to consider a proposed settlement with Coinsquare and three of its executives: CEO Cole Diamond, founder and president Virgile Rostand, and chief compliance officer Felix Mazer.
The allegations have not been proven, and the terms of the settlement will only be made public if the agreement is approved at the hearing.
According to the allegations released Friday, the OSC is alleging that the firm violated securities rules by inflating trading volumes for its platform; misleading clients about that activity (including via responses to posts on Reddit.com that discussed the platform’s reported trading activity); and taking action against an internal whistleblower who reported suspicious trading activity internally.
“Coinsquare inflated its trading volumes by reporting fake or ‘wash’ trades representing over 90% of its reported trading volume,” the OSC alleged.
The regulator also said that this activity was done at the direction of the company’s CEO, and that another executive wrote an algorithm to generate the inflated volume numbers.
“Despite several Coinsquare employees raising concerns about inflated trading volumes, Coinsquare stuck with the practice,” the OSC said. “This tone from the top undermined the compliance culture at Coinsquare.”
One employee who repeatedly raised concerns about the alleged fake trading volume with senior management at the firm was largely ignored, the OSC said. Ultimately, the regulator added, the individual was terminated by the firm — which the OSC is alleging amounts to illegal retaliation against a whistleblower.
This represents the first time that the OSC has alleged a violation of its whistleblower protections, designed to prevent retaliation against tipsters who try to report suspected misconduct. The protections were adopted as part of its enhanced whistleblower program.
In the July 17 allegations, the OSC said that while it supports innovation in the market, “innovators must operate with the same honesty and responsibility as all other market participants.”
The enforcement action against Coinsquare and its executives is being brought “to hold them accountable for their misconduct and to send a message to other market participants in the crypto asset sector that deceptive conduct will not be tolerated in Ontario’s capital markets,” the OSC said.