The British Columbia Securities Commission ordered Vancouver payment processing company NetCents to pay more than CAD 3.3 million after it admitted to making misrepresentations, illegally distributing securities and operating an unauthorized exchange in connection with a crypto-asset it created and sold. The funds will be made available to investors who lost money as a result of the misconduct. From September to December 2017, NetCents created and sold the NetCents Coin to approximately 500 investors in British Columbia and elsewhere, raising CAD 3.3 million. The coin was found to be an investment contract and therefore a security, but NetCents did not file a prospectus or rely on an exemption. NetCents also made statements about independent non-profit entities (the NetCents Coin Organization and the NetCents Coin Foundation) that purportedly issued the coin, managed transaction authorization nodes, released coins on a schedule, and administered a reserve account holding sale proceeds for coin holders, although neither entity existed during the distribution period and proceeds instead went to NetCents. Additional misrepresentations included claims that coin tranches were sold out and that the coin’s value had quadrupled, and a video stating monthly revenue of CAD 100,000 despite financial disclosure showing full-year 2017 revenue of less than CAD 100,000. NetCents also ran an online platform for customers to buy and sell the coins without being recognized by the BCSC as an exchange. Under the settlement agreement, NetCents is prohibited from trading or purchasing any securities or derivatives, becoming or acting as a registrant or promoter, and engaging in promotional activities by or on behalf of parties who would reasonably be expected to benefit. The directors and officers involved at the time of the misconduct are no longer part of the company’s management.

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