On February 15, 2019, the Ontario Securities Commission (OSC) declined to approve the prospectus (the prospectus) for The Bitcoin Fund (the Fund), which is managed by 3iQ Corp (the Manager).
In his 17-page decision, the OSC’s Raymond Chan, Acting Director of Investment Funds and Structured Products, cited subsections 61(1) and 61(2)(a)(i) of the Securities Act, (Ontario) (the Act), stating that granting permission to issue the prospectus “would not be in the public interest to do so,” and “the prospectus does not comply in a substantial respect with a requirement of the Act or the regulations.”
The Manager announced the Fund in October, 2018, filing a non-offering prospectus with the intention of creating what it termed as the “first regulated Bitcoin fund in the world.” It was structured as a non-redeemable investment fund (NRIF) established under the laws of the Province of Ontario. The Fund’s investment objectives for its investors were twofold: to provide to exposure to bitcoin and the daily price movements of bitcoin; and, second, to provide the opportunity for long-term capital appreciation.
In making the public interest case, the OSC’s Chan wrote, “In my view, because of the lack of established regulation for the bitcoin market at this time, an investment in the Fund raises a number of investor protection issues, notably concerning the valuation, safeguarding and liquidity of bitcoin.”
In ruling that the Fund’s prospectus was noncompliant with the Act, Chan noted that bitcoin was an illiquid asset and as such, did not comply with NI 81-102, Investment Funds and its restriction against holding illiquid assets. Under NI 81-102, an illiquid asset is defined “as a portfolio asset that cannot be readily disposed of through market facilities on which public quotations in common use are widely available at an amount that at least approximates the amount at which the portfolio asset is valued in calculating the net asset value per security of the mutual fund.”
The complete written verdict is available for download from the website of the Ontario Securities Commission.
For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.
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