Over the past few years, the scope and reach of digital asset services on offer has grown exponentially. Naturally, this increased exposure has also led to increased scrutiny of these same services. As a result, we have highlighted on various occasions different lawsuits being filed against companies, as jaded investors look to hold them accountable – especially during bear markets and trying times like the present. The most recent example of this involves two of Canadas more popular, and reputable, exchanges – WealthSimple, and Shakepay.
The Issue at Hand
With this particular lawsuit, the issue at hand stems from what the law firm representing the plaintiffs (LPC Avocat Inc.) describe as ‘hidden fees'. Among digital asset exchanges, it has become somewhat the norm to tout ‘free-trading', or ‘no-commission'. Many however find this misleading, because while the exchanges may not explicitly charge a percentage on top of each trade, asset pricing is altered to ensure profitability regardless through manipulating the spread in value between buyers and sellers.
The plaintiffs indicate that this lawsuit if about more than just hidden fees catching consumers off guard. It also about leveling the playing field between the defendants and other Canadian exchanges which don't take part/profit from such practices.
Speaking on behalf of the plaintiffs with The Globe and Mail, Joey Zukran of LPC Avocat states, “We looked at all the big crypto players as a whole that operate in Canada, and found that they don’t advertise the same as Wealthsimple and Shakepay, which falsely represent that they are free of any commission fees…This gives them a huge and unfair advantage over the companies because those other players are not able to match their false promises.”
The Finer Points
As it stands, this Class Action has been filed with the Superior Court of Québec, and is seeking punitive damages totaling $10M from each defendant. This could easily become significantly more of an issue for each defendant though, as LPC Avocat is reportedly pushing for the lawsuit to be seen on a national scale.
If approved to proceed by the Superior Court of Québec, this suit would see allegations that the defendants have breached the following areas of the provinces Consumer Protection Act.
- Section 12 which stipulates that “No costs may be claimed from a consumer unless the amount thereof is precisely indicated in the contract.”
- Section 224 which stipulates that “No merchant, manufacturer or advertiser may, by any means whatever…charge, for goods or services, a higher price than that advertised.”
To be more specific, LPC Avocat indicates that it believes the pair of defendants to be in breach of the above Sections due to,
- Baiting customers with ‘commission free trading'
- Manipulating spreads
- Failing to disclose actual cost of trading activity
If successful, LPC Avocat is looking for more than just punitive damages, but for the courts to, “…force Shakepay and Wealthsimple to modify their business practices so that they are transparent about their prices, their fees and the real costs to their customers for using their services,”
Upon news breaking of this pending lawsuit, representatives from each WealthSimple and Shakepay took the time to comment on the situation with BetaKit.
A Shakepay representative stated, “We have always put transparency at the forefront of everything we do. That’s a commitment we’ve made to ourselves and our customers. This legal action has no merit and we will fight it before the courts.”
A WealthSimple representative stated, “We have always been transparent about what we charge for our services – that’s our commitment to our clients…This legal action has no merit and we will defend our company against it.”
A Growing Trend
While it may be WealthSimple and Shakepay now experiencing an unfortunate time under the spotlight, the pair of service providers are only the latest in a growing crop of similarly embattled companies. The following are a few other examples of lawsuits pertaining to digital assets which have been filed in recent times.
- Mark Cuban – Accused of promoting unregistered securities on offer by the now defunct Voyager
- Solana Labs – Accused of selling unregistered securities known as ‘SOL'
- Coinbase – Accused of substandard security practices surrounding client accounts and assets
- Binance – Accused of false marketing surrounding the stability of the Terra ecosystem
These aforementioned examples are only a drop in the bucket, with many more in various states of completion.