The BC Securities Commission (BCSC) will receive funds of over $3.3 million from a Vancouver-based payment processing company that admitted to making misrepresentations, illegally distributing securities, and operating an unauthorized exchange concerning a crypto asset it created and sold.
NetCents created the crypto asset NetCents Coin, which the BCSC called an investment contract and thus a security. NetCents sold this coin to around 500 investors in the province and elsewhere from September to December 2017 and earned $3.3 million in total proceeds, according to a news release from the BCSC.
The BCSC said it will make the funds received available to investors who lost money due to NetCents’ misconduct.
A settlement agreement prevents NetCents from:
- trading or purchasing any securities or derivatives
- becoming or acting as a registrant or promoter
- engaging in promotional activities on its own behalf or on behalf of an issuer, security holder, or party to a derivative, or another person whom it reasonably expected to benefit from the activity
Acts leading to liability
The BCSC said NetCents illegally distributed securities by failing to file a prospectus and failing to fall within an exemption from the prospectus requirement.
The BCSC added that NetCents made statements to investors that it knew or reasonably should have known were misrepresentations under BC’s Securities Act, 1996, through its publication or issuance of website statements, news releases, and a YouTube video.
NetCents stated on its website that NetCents Coin Organization, an independent non-profit organization, would issue the coin and manage the network of nodes for coin transaction authorizations, the BCSC’s news release said.
NetCents also stated that all sale proceeds from the coin would remain in NetCents Coin Organization’s treasury reserve account for the benefit of all coin holders, the BCSC’s news release added.
On another website, NetCents appeared to represent the non-profit organization NetCents Coin Foundation, which had a stated mission to develop, administer, promote, and maintain the coins on the community’s behalf, the news release also said.
The BCSC said NetCents Coin Organization and NetCents Coin Foundation could not have performed what they claimed to have done since they did not exist during the distribution period. Instead, NetCents received all the proceeds from coin sales, the BCSC said.
NetCents said in news releases that the first two tranches of coin releases had completely sold out, a third tranche had started selling, and the coin’s value had quadrupled. However, the BCSC said the first and second tranches had not sold out before the issuance of these news releases.
A YouTube video posted by NetCents said it had a monthly revenue of $100,000 and growing. The BCSC disagreed and noted NetCents’ financial disclosure revealed that its revenue for the 2017 fiscal year was below $100,000.
Lastly, the BCSC said NetCents set up an online exchange where customers could open accounts and make orders to purchase and sell coins. The BCSC noted that it did not recognize NetCents as an exchange, as required by the Securities Act.