Canada’s financial watchdog IIROC has published a statement warning of the activities of crypto broker EliteSFX, which was flagged for allegedly offering cryptocurrency-focused trading products without complying with its financial legislation.
The regulator specifically pointed out that EliteSFX is luring investors with promises of quick profits in cryptocurrency trading. But when victims try to withdraw funds from their account, the company falsely claims that their withdrawals are put “on hold” by IIROC and they are required to “upgrade” their accounts.
EliteSFX’s offering raises a number of red flags characteristic of investment scams. Specifically, they claim to invest in Bitcoin/cryptocurrency markets on behalf of their clients, adding that their profits will be quickly realized with no risk. These claims carry the hallmarks of investment fraud. They also claim they’ve been in business for a while, but some investigative work on the regulator’s side suggests they’ve been around less than one year.
Canadian regulators have been vigilant recently following the collapse of the Toronto-based hedge fund that promoted Blockchain Terminal (BCT) initial coin offering.
The most controversial defendant was Boaz Manor, a convicted Canadian hedge fund fraudster who served jail time. In 2012, Manor accepted a lifetime ban on operating within the securities industry following his conviction in the $106 million scam. He was sentenced to four years in prison.
Regulators step up their efforts
Arguably one of the most audacious ICO scams in recent years, Boaz claimed that he onboarded 20 hedge funds to test out his professional trading service. In fact, he’s never seen the product in action, even though it sent a prototype to a dozen funds, but none of them used or paid for it.
On the trading front, the chief regulatory body in Canada has proposed a regulatory framework that provides clarity for derivatives activities, including cryptocurrency, forex, and CFDs products. Among other things, all highly leveraged products offered to retail clients must be approved in advance by IIROC. Brokers must obtain prior approval for their leveraged products either when releasing new instruments or introducing any changes to the current offerings.
The regulator also said its updated rules to ‘harmonize’ IIROC requirements with product approval requirements introduced in Europe by ESMA, which banned offering binary options and restricted leverage on CFDs.
Although the Canadian regulator seems to have its hands tied when it comes to policing brokers operating in foreign jurisdictions, the IIROC said that it is also coordinating efforts with global regulators to share information and track fraudulent activity. Over the past few months, it has been reaching out to their counterparts in other countries in an effort to end fraudulent financial transactions that originate abroad.
The coordinated effort appears to be driven by a number of clients that have been the victim of the scams of crypto providers purporting to be legitimate and based in either Canada or other jurisdictions.