A recent decision by the Tribunal administratif des marchés financiers (the “TMF”) may temper how Canadian securities regulators approach cryptoassets.
In AMF v. Gagnon, the Autorité des marchés financiers (the “AMF”) sought various interim orders in the context of an investigation into the alleged manipulation of crypto-token prices. To justify the TMF’s intervention, the AMF had to establish that the tokens in question constituted investment contracts governed by the Securities Act.
In its decision, however, the TMF determined that the transactions were merely speculative trades on the secondary market. In the absence of any contribution to a venture [translation] “with a genuine economic reality,” the TMF held that these transactions did not amount to investment contracts. In concluding so, the TMF expressly drew on the Ripple Labs decision, where the U.S. District Court for the Southern District of New York distinguished between:
- situations where investors provide capital directly to the promoter of a cryptoasset to fund the development of a business—potentially giving rise to an investment contract; and
- the buying and selling of cryptoassets on secondary markets for speculative purposes—which generally do not qualify as investment contracts.
By endorsing this distinction, the TMF emphasized that the legal characterization of a cryptoasset must be assessed on a case-by-case basis, in light of the economic reality of each transaction.
The TMF further noted that Québec’s legislature [translation] “has chosen, for now, not to explicitly subject cryptoassets to the Act.” It also cautioned the AMF against stifling innovation, stressing that it is for lawmakers [translation] “to make the decisions they deem appropriate to safeguard both the competitiveness and integrity of financial markets while ensuring adequate investor protection.”
This decision may signal a step toward greater harmonization in the way courts on both sides of the border approach cryptoassets. It remains to be seen whether Canadian lawmakers will see fit to intervene to clarify the regulatory framework for cryptoassets. In the meantime, the Gagnon case can be seen as a warning against attempts to “regulate by enforcement” in order to fill the legislative gap. As it turns out, not all that glitters on a DEX is a security.
The decision is currently under appeal.