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OSC accuses Toronto’s Liquid MarketPlace and three top executives of fraud



OSC accuses Toronto’s Liquid MarketPlace and three top executives of fraud

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The OSC’s Capital Markets Tribunal said it will hold a hearing next month on allegations that LiquidMarketplace’s three top executives illegally diverted millions of dollars in investor funds.Melissa Tait/The Globe and Mail

Liquid MarketPlace Inc. says it sells investors portions of rare collectibles like sports trading cards using crypto technology, but the Ontario Securities Commission alleges the company is in fact a “multi-layered fraud.”

The OSC’s Capital Markets Tribunal said Friday it will hold a hearing next month on allegations that the company’s three top executives illegally diverted millions of dollars in investor funds to themselves, then lied to OSC staff when questioned about their income. Ryan Bahadori, Amin Nikdel and Dennis Domazet – Liquid MarketPlace’s chief executive officer, chief technology officer and former chief financial officer, respectively – each face up to $7-million in fines alongside other penalties.

Toronto-based LMP raised more than $10-million, according to its own public disclosures, of which the OSC alleges roughly $3-million was misappropriated for the personal enrichment of Mr. Bahadori, Mr. Nikdel and Mr. Domazet. Mr. Bahadori also used company credit cards and funds “to pay for nearly half a million dollars worth of personal expenses including high-end fashion, expensive jewellery and watches, personal health and spa services,” the OSC alleged.

The three also authorized interest-free loans of at least $550,000 in investor funds to themselves – including more than US$10,000 that went to pay Mr. Bahadori’s rent – which were never repaid, the OSC alleged.

LMP also made false and misleading statements about its core business, the OSC alleged. The company sells “LMP Tokens” for 10 cents each, which it claims represent fractional ownership of a certain collectible. For example, one of the first items LMP offered when it launched in 2022 was a 2003 autographed Lebron James jersey patch rookie card.

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The company claims its tokens represent genuine ownership in underlying collectibles, and that the collectibles themselves have been authenticated, appraised and insured. According to the OSC, the company has sold roughly US$2.7-million worth of its LMP Tokens.

When The Globe and Mail reviewed the Liquid MarketPlace website on Friday afternoon, it continued to say its collectibles “are carefully selected, authenticated and appraised by industry experts.”

However, the OSC alleged LMP Tokens “do not represent legal ownership of underlying collectibles” and the company “does not authenticate, appraise or insure the collectibles.”

Even when a collector was known to have previously brought fraudulent collectibles to the LMP platform, the OSC alleged the company never conducted any diligence to ensure the authenticity of subsequent collectibles brought to the platform by the same collector.

The company did not respond to a request for comment and individual messages sent to Mr. Bahadori, Mr. Nikdel and Mr. Domazet via LinkedIn were not returned. Mr. Nikdel is listed as a founder or co-founder of four other startups on his LinkedIn profile.

Mr. Domazet’s profile cites more than 14 years working for Deloitte Canada, including nearly three years as the firm’s blockchain tax leader, before starting his own small business-focused accounting firm in 2020.

According to the OSC, it was in late 2021 that the three men “devised a scheme to make significant payments to themselves through purported consulting companies,” each of which had “Kooney” in its name. More than $2.5-million was eventually transferred to what the OSC referred to as “the Kooney Companies,” the OSC alleged.

“The services purportedly provided to LMP by the Kooney companies were identical to the pre-existing roles and responsibilities of the LMP Principals, for which they were already earning generous salaries,” the OSC said.

Despite being “asked multiple times in a variety of ways” about his total compensation, Mr. Bahadori told OSC investigators he earned a roughly $102,000 salary in 2022 and no salary in 2023. The other two men cited the same figure.

The OSC said it later discovered Mr. Bahadori had received more than $300,000 in annual salary and more than $1.2-million in payments to his Kooney Company and that the other two men had also received several hundred thousand dollars more than they had previously claimed.

“It was only after the Commission independently discovered these payments and questioned the LMP principals that they admitted to these payments,” the OSC said.

The tribunal will hear the case on July 31.

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