National Post (National Edition)
Decision in Alberta man's crypto case offers investor lessons
Three years ago, living in Calgary, I investigated a local cryptocurrency promoter for my book Once a Bitcoin Miner. The man, a bit of a colourful character, had been in trouble with the Alberta Securities Commission, and the case only recently came to a conclusion.
The money involved was only in the hundreds of thousands. And the law the ASC has now ruled that the man broke is a bit of a boring one — he sold investment products without the proper disclosures and paperwork. But the substance of the story holds valuable lessons for those who want to invest in cryptocurrency.
In its April decision, the ASC said that Jan Gregory Cerato, 51, had set up a “whaleclub” cryptocurrency investment service in 2017 and marketed it to the public. “Cerato made extravagant promises of spectacular returns from his trading team's purported ability to successfully trade cryptocurrencies,” the ASC wrote.
In casino parlance, of course, “whales” are wealthy patrons who get special attention because they spend so much. You can probably tell how this story is going to go.
Cerato, who did not respond to my request for comment, had no business selling investment products. He had been running a marketing company. He also had a history in the courts, where records show he had been evicted and racked up debts over which he had successfully been sued.
But those were the times of boom and mania. Think 2021 was wild? Well, let me tell you about 2017.
That year, Bitcoin spiked to US$20,000, up from US$1,000. Along with that was an explosion of more than 1,000 different coins and tokens. Everyone wanted to get in on that Bitcoin money.
It was against that backdrop that Cerato, a bald, bespectacled man who has described himself as “flashy,” tried to establish himself as a “Crypto Wealth Coach.”
The first time I came across Cerato, he was organizing an event for a project that later was sued by the U.S. Securities and Exchange Commission. (Cerato would later deny having had anything to do with it.)
Sometimes, Cerato said things that didn't quite make sense, like “Bitcoin is a profit that you buy.” He would later even straight-up say, “I know nothing about the investing world.”
This was how the whaleclub was born. The premise was that people would hand over money or Bitcoin to four traders under Cerato who would actively play the market, and Cerato and his team would take a cut of the profits.
While the ASC would later say the club managed “at least” $190,000 from as many as 34 people, Cerato himself once said investors “trusted me with a million bucks, and they trust me even with more.”
It should be no surprise that nobody ended up making any money in that venture.
But why did so many people trust Cerato?
The answer is that the investors knew even less about crypto than Cerato, who the ASC said “marketed the whaleclub as ideal for cryptocurrency novices.”
During the ASC hearing for the case, one investor said he met Cerato for the first time in a chance encounter at a bar and wrote him a $10,000 cheque on the spot because “he was a good talker.”
In a murky world with few established institutions, it can be hard to know what question to ask, much less to challenge the credibility of someone who seems to know what he's talking about.
The lesson in this might seem obvious, but it is surprisingly common: None of the investors thought this would happen to them — until it did.
Then there's how long the whole ASC process took. From investigations to the end of Cerato's hearing, it was more than two years. Then it took another year for the ASC to reach a decision.
The regulator said Cerato made a “convoluted and carelessly drafted” submission on how he was allegedly mistreated under the Charter of Rights and Freedoms, making the proceedings “far more time-consuming” than it needed to be.
The ASC has yet to rule on the appropriate punishment for Cerato.
As for the investors, some did get partial refunds earlier, when the ASC came knocking on Cerato's door. But there was no mention of making investors whole again in the ASC's ruling, for that is not the regulator's job.
And therein lies another lesson, that all investors should heed, be it crypto or otherwise: If things go wrong, you're probably on your own.
NONE OF THE INVESTORS THOUGHT THIS WOULD HAPPEN TO THEM — UNTIL IT DID.