The Alberta Securities Commission has sanctioned an Edmonton man and his cryptocurrency company for what it called "serious misconduct." (Submitted by Tanja McMorris)
In a significant development, the Alberta Securities Commission has taken action against Devon Christopher Edwards, an Edmonton resident, and his cryptocurrency company, KB Crypto Inc., citing what it deems "serious misconduct." Edwards, admitting to breaching Alberta securities laws, has been ordered to pay a substantial $40,000 penalty and is prohibited from engaging in trading or providing advice on securities.
The Alberta Securities Commission, in its decision posted on January 12, found Edwards, as the director of KB Crypto Inc., responsible for engaging in activities that resulted in "considerable financial losses" estimated at over $400,000 for investors. The commission highlighted that the actions of Edwards and his company were in direct contravention of crucial securities law provisions, which are designed to safeguard investors and maintain the integrity of the capital market.
According to the commission's findings, Edwards and KB Crypto Inc. failed to file prospectuses for investment contracts and did not register under Alberta securities laws. Prospectuses, complex documents providing financial information and business details, are essential for investor protection. Calgary lawyer Matt Burgoyne, co-chair of Osler, Hoskin and Harcourt's digital asset and blockchain group, emphasized the meticulous process of registering as a securities dealer, involving months of scrutiny and ongoing disclosure requirements.
"The likelihood of [misconduct] happening through a registered dealer is very low because of all these checks and balances that are involved in the registration process," Burgoyne explained.
Edwards incorporated KB Crypto in the Bahamas in 2021 and, between February 2021 and November 2022, presented himself as an expert in high-frequency or automated trading. He solicited investments for a trading pool, promising a "state-of-the-art real AI system" with low trading risks and weekly payouts. The company also offered referral bonuses for bringing in new investors.
The securities commission revealed that Edwards converted bitcoin from investors into U.S. dollars or other cryptocurrencies, subsequently using the funds to trade contracts for difference (CFDs) through online platforms in various countries. CFDs are agreements based on the difference between entry and closing prices.
Allegedly raising approximately $600,000 from 75 investors, at least four of whom were residents of Alberta, Edwards provided returns of nearly $248,000. After KB Crypto ceased operations in November 2022, Edwards claimed to have repaid around $186,000 to investors. However, a statement of admissions signed by Edwards in September acknowledged investor losses of approximately $416,000 due to unsuccessful trading.
While Edwards contacted the Alberta Securities Commission in December 2021, revealing his capital-market activities, he did not respond to requests for a written description or analysis of those activities. Edwards and KB Crypto did not apply for registration or cease operations as instructed by the regulator.
In its decision, the Alberta Securities Commission commended Edwards and the company for providing "prompt, fulsome, and helpful cooperation" during the investigation. The commission imposed a $40,000 penalty on Edwards, along with $10,000 in costs for the investigation and hearing.
Edwards, reported to be unemployed with limited assets, and KB Crypto, claimed to have no assets. The sanctions include a permanent ban on KB Crypto from trading, buying, or advising on securities or derivatives. Edwards faces market-access bans for five years or until he pays the fine, whichever is later.
This decision by the Alberta Securities Commission underscores its commitment to investor protection and serves as a deterrent against similar misconduct, according to Calgary lawyer Matt Burgoyne. Investors are encouraged to use tools provided by the Canadian Securities Administrators to verify registrations and exercise caution, particularly when faced with unrealistic returns and referral bonuses. Kyle Mackenzie, a cryptocurrency taxation expert, flagged such bonus offers as red flags for investors, cautioning that if something seems too good to be true, it likely is.
