A new Canadian class action against Binance accuses the company of selling digital asset derivative products to retail investors without registration and reveals that the company is still under investigation by the Ontario Securities Commission, despite having announced its departure from the country in May 2023.
A class action lawsuit filed last week with the Superior Court of Justice in Ontario, Canada, accused Binance of violating local securities laws by selling digital asset derivative products to retail investors without registration.
According to the April 19 certification motion, the plaintiffs, represented by Christopher Lochan and Jeremy Leeder, allege Binance violated the Ontario Securities Act (OSA) and federal law by selling digital asset derivatives products, with the lawsuit seeking damages and rescission of unlawful derivatives trades.
The plaintiffs claim to represent “tens of thousands of Canadian users of the Binance website who invested in cryptocurrency products and who claim that those products were sold by the Defendants illegally.”
The filing also noted that “cryptocurrency derivatives traders include a great many retail investors,” adding that more than 50% of Canadian digital asset owners have at least $5,000 in the market, according to the Ontario Securities Commission (OSC).
This latest class action against Binance comes a couple of years after the exchange announced plans to cease operations in Ontario. The move followed a March 2021 warning issued by the OSC to digital asset platforms trading in derivatives or securities, which stated “they must bring their operations into compliance with Ontario securities law or face potential regulatory action.”
Binance decided not to bring its operations into compliance, instead withdrawing from the jurisdiction, so in December 2021 the OSC published another release notifying investors, “Binance is not registered under securities law in Ontario. This means they are not authorized to offer trading in derivatives or securities to persons or companies located in the province.”
However, last week’s court document suggests that, despite failing to register and announcing its withdrawal, Binance did not cease its derivative trading:
“As a result of its failure to adhere to this announced cessation of sales, in early 2022, the OSC notified the defendants of its intention to seek a cease trade order.”
Perhaps sensing its jig was up in Canada, on May 12 last year, Binance confirmed it would be exiting the country amid increased regulatory requirements introduced by the Canadian Securities Administrators (CSA), the umbrella organization for the country’s securities regulators.
The company cited “new guidance related to stablecoins and investor limits,” which made the Canadian market “no longer tenable for Binance at this time.”
Unfortunately, even it announced its departure from Canada, local authorities continued to pursue the exchange, with the latest court motion confirming that “the OSC’s investigation into the Defendants is ongoing.”
Bad week for Binance PR department
Binance’s recent woes are not restricted to Canada. Putting to one side that the company’s founder and former CEO Changpeng ‘CZ’ Zhao is currently awaiting sentencing in the United States after pleading guilty last November to violating the Bank Secrecy Act, and causing a financial institution to do likewise, the company continues to create negative headlines around the globe on an almost weekly basis.
On Monday, the Kenya Police Service arrested another criminally charged Binance executive, Nadeem Anjarwalla, who decided to go on the run rather than face his punishment.
Anjarwalla was initially detained in Nigeria alongside another Binance executive, Tigran Gambaryan, in February, as Nigerian authorities accused the exchange of manipulating the local exchange rate, tax evasion and money laundering. A British-Kenyan dual national, Anjarwalla reportedly fled the country in March using a Kenyan passport.
After his alleged capture on Sunday evening, Interpol will extradite Anjarwalla from Kenya to Nigeria within the week, according to a report from Nigerian news outlet Punch, citing “sources familiar with the case.”
Only a day after the reported arrest of the fleeing executive, Binance’s week went from bad to worse as its international PR house fire spread to the Philippines.
On April 23, the Securities and Exchange Commission (SEC) of the Philippines announced
that it was working with Google (NASDAQ: GOOGL) and Apple (NASDAQ: AAPL) on the removal of applications operated by Binance in app marketplaces accessible in the Philippines.
In separate letters addressed to Google and Apple, the SEC requested the removal of applications controlled by Binance.com from Google Play Store and the Apple App Store, respectively.
“The SEC has identified [Binance] and concluded that the public’s continued access to these websites/apps poses a threat to the security of the funds of investing Filipinos,” SEC Chairperson Emilio B. Aquino said in the letter.
The letter also accused the exchange of the sale or offer of unregistered securities to Filipinos and operating as an unregistered broker, constituting a violation of Republic Act no. 8799, the Securities Regulation Code (SRC).
“Binance… has not secured from the SEC a license to solicit investments from the public, nor to create or operate an exchange for the buying and selling of securities, as required by SRC,” the SEC said.
The regulator hopes that the removal of the Binance app from leading app stores will “prevent the further proliferation of its illegal activities in the country” and “protect the investing public from its detrimental effects on our economy,” Aquino said.
As well as warning the public against investing in and using the exchange, Tuesday’s SEC announcement noted that the regulator had been “studying the possible blocking of Binance’s website and other online presence in the Philippines, as early as November 2023.”
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