Quebec-based law firm LPC Avocat Inc. has filed a lawsuit against Toronto-based Wealthsimple Technologies Inc.Eric Akaoka/The Globe and Mail
A proposed class-action lawsuit has been filed against two financial technology companies, alleging their online trading platforms charged millions of dollars in hidden fees for clients while advertising commission-free trades for cryptocurrencies.
Quebec-based law firm LPC Avocat Inc. has filed the lawsuit against Toronto-based Wealthsimple Technologies Inc. WSRD-T and Montreal-based Shakepay Inc., claiming both companies failed to disclose the true cost of their services to customers. The suit, which is seeking damages of $10-million each from Wealthsimple and Shakepay, also alleges that both companies bait customers to use their trading platforms by using terms such as commission-free or zero fee commissions.
“I think these companies took advantage of what many have called a crypto gold rush during the pandemic,” Joey Zukran, a lawyer with LPC Avocat, told The Globe and Mail. “Do you think Walmart would ever say it has no hidden fees to compete with another grocer like that? Shakepay and Wealthsimple need to be held accountable.”
The class action has not been certified and none of the allegations have been proven in court.
Online bank challenger Wealthsimple became one of Canada’s most valuable private technology companies after it raised $750-million last year, giving it a $5-billion valuation. It first began to offer trading in bitcoin and ethereum in 2020. That has now expanded to include more than 50 cryptocurrencies.
Wealthsimple spokesperson Rachael Factor said the legal action has no merit and the company will defend itself on all allegations.
“We have always been transparent about what we charge for our services – that’s our commitment to our clients,” Ms. Factor wrote in an e-mailed statement.
Sophia Cote, head of communications at Shakepay, issued a similar statement Wednesday. She said the company has “always put transparency at the forefront of everything we do.”
“That’s a commitment we’ve made to ourselves and our customers,” Ms. Cote wrote in an e-mail. “This legal action has no merit and we will fight it before the courts.”
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Mr. Zukran says the “deceptive” practice of advertising for their crypto exchange trading services as commission-free by each company is contrary to Quebec’s Consumer Protection Act, and both companies should have to cease marketing as a result.
“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,” Mr. Zukran said in an interview. “This gives them a huge and unfair advantage over the companies because those other players are not able to match their false promises.”
According to court documents, lead plaintiff Shay Abicidan – a Montreal resident who invested in cryptocurrencies on both trading platforms – claims Wealthsimple and Shakepay keep their bid/ask trading spread “intentionally large.” The bid/ask spread is the price difference between what a buyer will pay for a cryptocurrency, and the lowest price a seller is willing to accept. The ask price ultimately determines the price of the trade. The lawsuit said another trading platform, Kraken, had a typical $5 to $10 spread on cryptocurrency trades on Sept. 29, 2022, whereas Shakepay’s spread was more than $600.
During a bitcoin trade, Mr. Abicidan found his balance dropped 1.2 per cent as a result of fees.
While Wealthsimple does not charge any commission fee to trade, Mr. Abicidan said he was paying an inflated bid/ask spread for his cryptocurrency on the platform as well as an additional 1.5-per-cent to 2-per-cent “operations fee” at Wealthsimple. That fee is posted on their website.
“If Wealthsimple inflates the ask price by 2 per cent or more in some cases, it is simply baking its commission fee into its spread,” Mr. Zukran said in court documents.
While LPC Avocat has filed the class action in Montreal, Mr. Zukran has requested a national class action. That means if certified, the suit would include investors anywhere in Canada who have used Wealthsimple or Shakepay.