ICO promoter CoinLaunch settles with Ontario securities watchdog

CoinLaunch Corp, a startup based in Ontario, Canada that offered an initial coin offering (ICO) promotion has agreed to a settlement with the Ontario Securities Commission (OCS). According to an announcement by the OCS, the company will also wind up its business and has already filed a notice of its intent to dissolve.

CoinLaunch launched in October 2017, just as cryptos skyrocketed to hit record prices. The OCS notes that the company advertised itself as a crypto consulting and promotion firm. It offered to help companies launch their tokens, raise funds from investors, take offerings on roadshows, consult on crowdsale campaigns and more.

CoinLaunch is alleged to have offered its services to two ICO offerings in particular: BCZERO and ECOREAL. The former was to raise funds for a Czech offroad truck racing team while the latter was to raise funds which would be used to develop a resort in Portugal.

The Ontario watchdog determined that the two token offerings constituted investment contracts and were therefore considered securities by the Ontario Securities Act.

Evan Thomas, a crypto and fintech commercial litigator, took to Twitter to explain, “The problem here is that if tokens are securities, CoinLaunch was holding itself out as engaged in the business of trading in securities — which triggers a requirement to register as a dealer under Ontario securities law.”

According to the OSC, CoinLaunch directors weren’t aware that in order to offer such services, they had to register with under the Ontario securities laws. Further, once it became aware, the company voluntarily took remedial steps that included removing the landing pages for BCZERO and ECOREAL. It also decided to cease its crypto consulting business altogether. These steps and its cooperation throughout were the factors that led to a lenient penalty.

The OSC panel noted this was a “modest” penalty but was appropriate because CoinLaunch hadn’t been aware of the registration requirements, co-operated with the investigation, and took remedial steps including winding down its crypto consulting business.

— Evan Thomas (@evanmthomas) July 26, 2019

Nevertheless, CoinLaunch will be required to pay an administrative penalty to the tune of C$30,000 (US$22,755). It will also pay disgorgement in the amount of C$9,278 and C$7,600 in costs. The company will also not engage in the trading of securities or derivatives for the next five years. Additionally, Reven Cohen, the CEO and director of the company will, on a voluntary basis, not join any company that engages in the same over the next five years.

The lesson here, according to Evan Thomas, is that the regulatory scope is widening. He tweeted: “Although regulators cracking down on ICOs have tended to focus on issuers, the big lesson here is that securities laws can apply to activities beyond issuing tokens, including activities that don’t involve buying or selling tokens.”