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Ontario’s Capital Markets Tribunal is holding a hearing to consider a proposed settlement between the Ontario Securities Commission (OSC) and the operators of a crypto-based prediction market, Polymarket, to resolve allegations that it breached securities law. 

The regulatory tribunal has set a hearing for April 14 to consider whether to approve a settlement with a pair of companies — Delaware-based Blockratize Inc. and Panama-based Adventure One QSS Inc. — concerning alleged violations of securities law.

The allegations have not been proven and the terms of the settlement will only be revealed if it’s approved at the hearing.

In the OSC’s application for enforcement proceedings, which sets out the allegations, the regulator says that between mid-2020 and mid-2023 the companies allowed investors in Ontario to trade binary options without an exemption.

Specifically, the regulator said that the platform allowed investors to make bets on specific events — such as whether Canada or the U.S. would win more gold medals at the 2022 Winter Olympics or on monthly U.S. inflation data — that amounted to binary options under Ontario securities law.

These bets were programmed into “smart contracts” that were made available on the Polymarket platform, and settled in crypto, the OSC said. It alleged that the companies advertised the platform to Ontario investors.

The companies “did not engage in any compliance discussions with the commission prior to making Polymarket available in Ontario,” it said, adding they weren’t granted any exemptive relief to offer binary options in Ontario, the OSC alleged.

According to the OSC, the U.S.-based company Blockratize operated the platform from mid-2020 to early 2022, when the U.S. Commodity Futures Trading Commission (CFTC) issued an order that, among other things, required it to stop trading certain contracts with U.S. investors. After that, the platform was operated by Panama-based Adventure One.

In its ruling, the CFTC said that Polymarket’s event contracts met the definition of swaps under U.S. derivatives law, which could only be traded on a registered exchange. The company settled that case too.

In its allegations, the OSC noted that, in May 2023, after being contacted by the regulator, the firm adopted restrictions that were designed to prevent investors in Ontario from accessing the platform to purchase the contracts. 

In 2017, the Canadian Securities Administrators (CSA) banned the sale of certain, short-term binary options to retail investors, amid concerns that investors were falling victim to schemes involving offshore platforms selling fraudulent binary options.