In a settlement with the Alberta Securities Commission (ASC), failed crypto trading platform CatalX CTS Ltd. and its former CEO admitted to breaching an undertaking with regulators while it sought registration. The regulator’s proceeding against the firm’s former chief financial officer is continuing.
The ASC reached a settlement with CatalX, which operated a crypto trading platform between February 2019 and January 2024, when the firm was placed into a court-ordered receivership after it discovered most of its clients’ assets were missing.
Prior to that, in March 2023, the firm had entered a pre-registration undertaking with securities regulators — a step that the Canadian Securities Administrators (CSA) began requiring of crypto firms in 2023 to protect investors, while the regulators worked through the process of registering those firms and bringing some oversight to the crypto sector.
In this case, the ASC alleged that CatalX breached that undertaking by failing to maintain adequate controls to safeguard investors’ assets, and failing to promptly inform the ASC when it discovered a material loss of investors’ assets.
According to the firm’s receiver, while company records indicated that it held approximately US$14 million worth of crypto assets, the actual value of its assets was just US$150,000.
“The primary cause of this shortfall was unauthorized withdrawals and the use of crypto assets for purposes unrelated to client activities,” the ASC said.
According to the settlement, while the firm learned about the apparent loss of client assets on Nov. 24, 2023, it didn’t tell the ASC until Dec. 21.
Now, in a settlement with the ASC, CatalX admitted to breaching its pre-registration undertaking. And the firm’s former CEO, Hyuk Jae Park, admitted to allowing those breaches.
Under the agreement, the company is permanently banned and Park was prohibited from registration and acting as a director or officer for six years. He also agreed to pay $90,000 to the ASC, including $10,000 in costs.
The ASC said that the sanctions against Park would have been more severe, had he not already contributed $950,000 to the receivership process — including $750,000 to finance a forensic audit, and a $200,000 contribution to the proceeds of the receivership.
“Commitments made to securities regulators are not optional. Pre-registration undertakings are significant legal obligations that crypto asset trading platforms must comply with to operate in Canada,” said Cynthia Campbell, director of enforcement at the ASC, in a release.
“The safeguarding of client assets and timely reporting of material breaches are core investor protection requirements,” she added.
Separately, the ASC continues to pursue its case against the firm’s former CFO, Jae Ho Lee, who was responsible for the firm’s day-to-day operations, and who the regulator alleged “played a primary role in the unauthorized withdrawals and shortfall in crypto assets.”
Those allegations have not been proven.