OSC Panel approves settlement with Coinsquare, Cole Diamond, Virgile Rostand and Felix Mazer
For Immediate Release Enforcement OSC
TORONTO – A Panel of the Ontario Securities Commission (OSC) today approved a settlement agreement with Coinsquare Ltd., Cole Diamond, Virgile Rostand and Felix Mazer. The settlement relates to market manipulation on the Coinsquare platform, misleading statements to investors and a reprisal against an internal whistleblower.
As part of the settlement agreement, Diamond and Rostand agreed to resign from their positions at Coinsquare and paid administrative penalties of $1 million and $900,000, respectively. Diamond and Rostand are also banned from acting as registrants and directors or officers of a registrant for three years and are banned from acting as directors or officers of other market participants for three and two years, respectively. These bans, together with other conditions, prohibit Diamond and Rostand from influencing the management of the Coinsquare platform for at least three years.
Mazer will be subject to a one-year ban from acting as a director or officer of a registrant, or from holding a position that requires registration. The settlement also reflects that Mazer resigned from his role as Coinsquare’s Chief Compliance Officer (CCO), and that he made a voluntary payment of $50,000 to the Commission.
Additionally, Coinsquare and its subsidiary seeking registration with the OSC (Coinsquare Capital Markets Ltd.) must implement substantial corporate governance improvements. These include establishing independent boards of directors, appointing new CEOs and CCOs, creating an internal whistleblower program and implementing policies and procedures to monitor and assess compliance with Ontario securities law.
“Despite several employees raising concerns about inflated trading volumes, Coinsquare not only stuck with the practice, but lied to investors about it and retaliated against a whistleblower,” said Jeff Kehoe, Director of the Enforcement Branch at the OSC. “Being an innovator in our capital markets is not a free pass to disregard Ontario securities law. All market participants – including those in novel industries – must act honestly and responsibly.”
“This settlement holds the Respondents accountable for their misconduct and requires Coinsquare to implement significant changes to improve their corporate governance, added Mr. Kehoe. “This case is also an important milestone, as it is the first action we have taken for a reprisal against a whistleblower since important protections for employee whistleblowers were added to Ontario securities legislation in 2016.”
Once corporate governance changes are made, Coinsquare Capital Markets must resubmit complete and updated applications for registration to the OSC and to the Investment Industry Regulatory Organization of Canada (IIROC). This process will permit OSC and IIROC Staff to assess the applications in light of all available information and then make a final determination on whether to grant or refuse registration.
Coinsquare, Diamond and Rostand will also pay a total of $300,000 toward the costs of OSC Staff’s investigation.
In settling this matter, Coinsquare admits that it engaged in market manipulation by reporting inflated trading volumes. Between July 17, 2018 and December 4, 2019, Coinsquare reported approximately 840,000 wash trades amounting to an estimated 590,000 bitcoins and representing over 90 per cent of the reported trading volume on its platform. These trades were created to inflate the trading volumes reported on the platform and had no economic substance.
Additionally, Coinsquare admits that it made misleading statements to conceal the wash trades when clients and members of the public raised questions about the suspicious trading volumes. Coinsquare also admits it took a reprisal against an internal whistleblower who reported concerns about the inflated trading volumes to the company’s senior management.
Diamond and Rostand admit that they engaged in conduct that facilitated one or more of these breaches of Ontario securities law. Mazer admits to failing to fulfil his role as the CCO of Coinsquare contrary to the public interest.
The OSC thanks IIROC for its assistance.
The mandate of the OSC is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair and efficient capital markets and confidence in the capital markets, and to contribute to the stability of the financial system and the reduction of systemic risk. Investors are urged to check the registration of any persons or company offering an investment opportunity and to review the OSC investor materials available at http://www.osc.gov.on.ca.