by Joseph Young
Dominion Bitcoin Mining Company Ltd. is set to undergo a securities hearing due to their “failure to comply” to the securities law of Saskatchewan, a province located in western Canada.
The Saskatchewan government accused the bitcoin startup for “disobeying” their laws and publicly advertising and displaying securities on its platform without following the Securities Act and notifying the local regulators.
Despite their lack of online presence, the company has been selling bitcoin and digital currency related securities on their website and promoting alternative products. Saskatchewan securities law requires that anyone selling these types of products must notify local regulators prior to their sale. Since the startup targeted institutional and qualified investors, its website is not allowed to promote securities publicly, without encrypting it with a basic log-in system.
“I only had access to what was publicly available,” said Financial and Consumer Affairs Authority (FCAA) investigate Harvey White. In April 2014, White visited the website of Dominion Bitcoin Mining Company and he noticed that most of the pages containing securities were publicly accessible, not protected with a log-in system or an alternative security system.
Harvey also claimed that a page on the website titled “Mining the new frontier” stated, “if you are a sophisticated investor, please feel free to peruse the rest of the site. Learn about bitcoins and learn how to share in the proceeds.”
However, three company officials Jason Dearborn, Peter Voldeng and Jim Gibbon accused the FCAA staff of trying to regulate “thought crimes” since they insisted that the website was intended to be a private forum for them to share ideas amongst themselves. Dearborn called the accusations “spurious” and stated that “the case lacks credibility.”
Despite the company officials objections, the FCAA issued a cease-trade order on May 1, 2014 and interviewed each of the officials. During the interview, the investigator pressured Dominion Bitcoin president and lead engineer Peter Voldeng to make significant changes to the beta website, which wasn’t even live.
Furthermore, the fact that the website was not live proved that the company didn’t intend to raise share capital during that period of time. “It is an operational company, not for investment,” Voldeng told White.
Voldeng also stated that the only people who ought to have been able to access the site would have needed login information.
Finally, on October 7, the Dominion bitcoin officials and the FCAA participated in the securities hearing, mainly to gather all information, disclose documents, finalize procedural issues and list of witnesses.
The case overseen by retired Queen’s Bench Justices Eugene Scheibel and Larry Kyle is set to continue once all documents and files are settled.
“We’re going to hear everything. This case has been going on and on for months and months,” said Scheibel.
Similar complaints were filed by the Commodity Futures Trading Commission on September 17, 2015, when the CFTC accused cryptocurrency platform Coinflip for offering bitcoin derivatives without notifying the CFTC and obtaining the necessary approval from the local regulatory body.
“While there is a lot of excitement surrounding bitcoin and other virtual currencies, innovation does not excuse those acting in this space from following the same rules applicable to all participants in the commodity derivatives markets,” said CFTC Director of Enforcement Allan Goelman.
UPDATE: On October 22, 2015, the panel determined that “notwithstanding the initially apparent validity of the allegations of the FCAA Staff, an offering of shares did not at material times exist, and that the parties did not individually or collectively engage in any acts in furtherance of trading or in any breach of provisions” of the securities act.
No sanctions or penalties will be imposed on Dominion Mining Company.