Canadian securities regulators recently collaborated with several law enforcement agencies, cryptocurrency trading platforms and blockchain analysis firm Chainalysis on Operation Avalanche, an initiative aimed at disrupting fraud in the cryptocurrency space.Melissa Tait/The Globe and Mail
Top executives at the Ontario Securities Commission say they are seeing a massive surge in online scams and fraud, many of them enabled by emerging technologies such as artificial intelligence and cryptocurrency.
The proliferation of online scams is occurring against a backdrop of what OSC chief executive officer Grant Vingoe described as an unpredictable geopolitical environment.
“We’re in an environment where there’s more scams, more fraud, more insider trading, more corruption, enabled by an atmosphere in which anything goes and the traditional norms are not being observed as they have in the past,” Mr. Vingoe said during the annual OSC Dialogue event, held in Toronto on Thursday.
“The unpredictability of the geopolitical environment leads to an environment where people who are interested in doing wrong will find a place,” he added.
Fraud victims reported a total of $648-million in losses to the Canadian Anti-Fraud Centre last year, a figure that likely represents just a fraction of the actual fraud that occurred.
Fraudsters employ various techniques to bilk people out of their money, from convincing them to invest through fake cryptocurrency trading platforms to impersonating victims’ loved ones with AI-generated deepfakes. Some scammers establish romantic relationships with their victims and spend weeks or even months grooming them.
Bonnie Lysyk, the OSC’s executive vice-president of enforcement, said the securities watchdog is being “inundated” with fraud cases.
Ms. Lysyk said the anti-fraud centre can only answer roughly 10 per cent of the calls it receives. At least 2,000 files have been referred to the OSC in the past year and a half, she said.
“We want to focus on high-impact cases, we want to select the right cases, and we want to address them as fast as we can,” Ms. Lysyk said.
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“And we want to send a strong message that perhaps we’re going to have to take these cases through the quasi-criminal or criminal route, because what we’re seeing is fraud. It’s not compliance with certain sections of legislation. We’re seeing actual Ponzi schemes and a lot of fraud,” she added.
Ms. Lysyk said the OSC is expanding its partnerships with police agencies and would like to become more effective at locating and freezing assets. It’s challenging because, in many instances, by the time an incident is reported to the watchdog, the money is already gone, she said.
“We want to put in place additional strategies to disrupt those who harm investors earlier,” Ms. Lysyk said.
Canadian securities regulators recently collaborated with several law enforcement agencies, cryptocurrency trading platforms and blockchain analysis firm Chainalysis on Operation Avalanche, an initiative aimed at disrupting fraud in the cryptocurrency space.
During the operation, which took place on March 11 and 12, investigators identified digital wallets on the Ethereum blockchain that had been compromised and contacted wallet owners to warn them of the threat. In total, 89 investors were contacted by phone or e-mail and informed that they may have lost, or were at risk of losing, some of their assets.
The initiative was led by the British Columbia Securities Commission and involved the OSC, the Alberta Securities Commission and Quebec’s Autorité des marchés financiers. Several law enforcement agencies, including Vancouver police, the RCMP and the U.S. Secret Service, also participated.
“The crypto space is ripe for fraud,” Ms. Lysyk said, noting that many of the crypto scams that the OSC is encountering are classic Ponzi schemes dressed up as cryptocurrency investments.
The OSC’s focus on crypto fraud contrasts with the approach that the U.S. Securities and Exchange Commission has taken since U.S. President Donald Trump took office.
“We’ve seen a real about-face, a real abandonment of the crypto program, with dismissals of all the registration cases and closure of all the investigations,” said Steven Peikin, a partner at New York-based Sullivan & Cromwell LLP and former co-director of the SEC’s division of enforcement.
“The only word I can use to describe what’s going on in the U.S. enforcement climate, particularly in the securities space, is seismic change,” he said.