Less than two years after the TMX Group Ltd. announced plans to launch a cryptocurrency platform, the project appears dead and a Toronto startup is suing the stock exchange and seeking US$500-million in damages.
In March, 2018, blockchain technology company Paycase Financial Corp. announced an agreement with TMX subsidiary Shorcan Digital Currency Network (Shorcan DCN) to build an over-the-counter (OTC) brokerage for trading in the virtual currencies bitcoin and ethereum.
At the time, John Lee, the TMX’s head of enterprise innovation and product development, called Shorcan DCN a “significant step forward in the execution of TMX Group’s digital strategy.” TMX said Bank of Montreal would provide payment and settlement services and that the project would launch in the second quarter of 2018.
In a statement of claim filed with the Ontario Superior Court of Justice on Monday, Paycase alleges that after months of work, legal counsel for TMX in December, 2018, e-mailed a “mutual termination agreement” purporting to end various contracts the parties had signed.
“This was meant to be a landmark deal that would create change between this early [cryptocurrency] ecosystem and the higher-finance institutional world,” Paycase CEO Joseph Weinberg said in an interview with The Globe and Mail.
“Why [TMX] shut it down is still, even to us, unknown. It’s not clear even to us today, which is more of the sad part,” he said.
“Shorcan DCN and Paycase were working together to try to find a viable and mutually agreeable business solution. We are very disappointed that Paycase has chosen to go this route. TMX disputes the claims made and we plan to defend ourselves vigorously,” TMX spokeswoman Catherine Kee said Monday.
Paycase, which has about 30 employees and was founded in 2014, is seeking a number of different remedies from the court, including an order for the parties to resume their obligations under the contracts.
“Since Paycase and TMX entered into this venture, similar models have been adopted by other major financial institutions, including Fidelity, E*Trade Financial and TD Ameritrade. Paycase is unable to enter into a new arrangement on a similar model with a similar party,” the company said in its court filing.
The company is also claiming revenue it says it would have earned if the 10-year contract had been performed as planned. It pointed to revenue projections from discussions with TMX in 2017, arguing Paycase would have earned revenues of more than US$500-million “over a five-year period alone." It is claiming that amount or “such other amount to be proven at trial.”
The Toronto startup is represented by Bay Street firm Osler, Hoskin & Harcourt LLP and is receiving financial support from third-party litigation funder IMF Bentham Ltd., an Australian company that opened a Canadian division three years ago.
Paul Rand, chief investment officer for Bentham in Canada, said the company has funded 15 cases in Canada, each following an extensive due diligence process. Bentham covers legal fees and disbursements (such as photocopying, courier fees and filing costs) and Mr. Rand said it doesn’t get paid unless its clients are successful.
“We don’t provide our capital when we don’t have a strong belief in the ultimate success of the case,” Mr. Rand said, though he would not comment on specific reasons for investing in the Paycase litigation.