On December 1, 2017, the Securities and Exchange Commission (SEC) commenced a civil action in the U.S. District Court against PlexCorps (also known as PlexCoin and Sidepay.ca) and its principals, Dominic Lacroix and Sabrina Paradis-Royer, seeking civil remedies including injunctive relief, an order freezing all of the defendants’ assets and disgorgement.  The SEC alleges that the defendants marketed and sold securities called PlexCoin in violation of anti-fraud and registration provisions of U.S. securities law.  On December 4, 2017, the SEC obtained an order freezing the assets of PlexCorps, Lacroix and Paradis-Royer.  This case represents the SEC’s first fraud case for its Cyber Unit.

PlexCorps is a Canadian company based in Quebec that conducted an initial coin offering (ICO) earlier this year with its issuance of PlexCoin.  During PlexCoin’s presale, PlexCorps was targeted by the Autorité des marchés financiers (AMF), which issued ex parte orders on July 20, 2017 barring PlexCorps from engaging in activities for the purpose of directly or indirectly trading in any form of investment described in section 1 of Quebec’s Securities Act, including soliciting investors inside and outside Quebec.  The AMF also ordered those parties to withdraw all advertisements or solicitations, online or otherwise, for PlexCoin.

On August 3, 2017, the AMF issued a press release observing that the respondents had apparently failed to comply with the AMF’s July 20, 2017 orders, and strongly cautioned investors of the major risks that could stem from responding to PlexCoin’s invitation to invest.  Media outlets later reported that on August 10, 2017, the AMF conducted a raid of the Quebec City offices.

The SEC action describes the PlexCoin ICO as an illegal offering of securities, because there was no registration statement filed or in effect during its offer and sale, and no applicable exemption was in place. The complaint notes that PlexCoin investments were solicited online and worldwide, including in the U.S.

The complaint also targets representations made by PlexCorps and Lacroix in solicitation of PlexCoin investment, such as the possibility of “outlandish rewards of 1,354% in 29 days or less”, and notes that the defendants have obtained an estimated $15 million in proceeds from the illegal PlexCoin sale.

As of the date of this post, PlexCoin’s website has been replaced by a cautionary statement noting the July 20, 2017 AMF orders and stating that all investors in PlexCoins “with a credit cart (sic) associated with a billing address in the province of Quebec, in violation of the terms and conditions included in the registration process prohibiting Quebec residents from purchasing PlexCoins, will be reimbursed.”  The statement further indicates that the AMF’s July 20, 2017 orders are set to be challenged.  According to the AMF’s website, that challenge appears to be scheduled for December 14, 2017.

The SEC action demonstrates the cross-border regulatory risks associated with ICOs, and the SEC’s willingness to engage with persons outside the U.S. who pose a threat to the capital markets. Canadians considering launching their own ICO should take note that, in addition to the regulatory risks of ICO launches in Ontario that we previously described, they may also need to observe foreign securities laws as well.