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Decision confronts challenges in valuing Bitcoin

|Written By Anita Balakrishnan
Decision confronts challenges in valuing Bitcoin
Chetan Phull says the issue of crypto-currency valuation is becoming more important.

A startup co-founder must post security for costs in cash of $50,000 to the court after an Ontario judge said there was “too much uncertainty” around the value of his company’s shares, including assets denominated in Bitcoin.

In the dispute, one co-founder claimed the company had “several million dollars” worth of Bitcoin, while the other said that the Bitcoin wallet balance “shows only a negligible amount and that it has previously shown a negative balance.”

Lawyers say the decision is one of many cases to come before the courts that illustrates how the legal system is grappling with valuing crypto-currency.

In Andersson v. Kamran, 2018 ONSC 5191, one of the defendants, Atif Kamran, requested that the judge order plaintiff Dan Andersson to post security of $150,000 to ensure that he could pay costs if LEO co-founder Kamran’s defence was successful, according to the decision, written by Ontario Superior Court Justice Jonathon George and published Sept. 5.

Andersson’s company, LEO Canada Inc., based in Markham, Ont., was also a plaintiff in the security for costs motion, and Geraldine Aquino, a former director and chief operating officer of the company’s Canada business, was also a defendant. The main dispute between the feuding executives, detailed in the decision Andersson v. Aquino, 2018 ONSC 743, initially arose over LEO’s direct-selling business, the sale of entrepreneurship seminars and conferences (LEO is an acronym for Learning Enterprises Organization).

The facts of the main case are “very much in dispute,” according to Justice Ian Leach, who wrote a January Superior Court decision in the main case.  Both sides allege misconduct from the other party.

Andersson alleged that he fired Kamran and Aquino for misconduct, but that after their termination, the pair “held an ‘illegitimate’ special shareholder meeting at which time they removed him as CEO, appointed Kamran as President and Secretary, and fraudulently transferred his shares in LEO Canada,” the decision said.

Kamran and Aquino previously told the court that they were whistleblowers within the company, calling out a long list of Andersson’s alleged misconduct.

Andersson’s main goal, the January decision says, was to prevent Kamran and Aquino, who were “engaged in an undisclosed personal relationship,” from contacting LEO Canada’s employees.

The prior January decision explained that LEO’s global branches have various shareholder structures and Kamran remains a shareholder and officer in other branches of the LEO company. Andersson seeks damages for breach of contract, conversion, misappropriation of property, breach of fiduciary duty, conspiracy, fraud and unjust enrichment.

At issue in the September Superior Court decision was whether Andersson had presented “convincing evidence” and “a compelling reason” to not order security for costs, George wrote. Andersson, a U.K. resident, said he has enough money in Ontario to pay costs through his shares in LEO Canada, George wrote.

One issue raised in the case was the value of LEO’s Bitcoin wallet.

“To the extent the bitcoin balance gives us a sense of the value of LEO Canada shares, it actually reveals them to be severely diminished. Furthermore, the serious and competing allegations of financial impropriety, if any are true, has (and will have) a detrimental impact on share value,” George wrote.

Andersson claimed the company had “several million dollars” worth of Bitcoin, and Andersson argued in his factum that Kamran knew the company was valuable.

“The court can . . . infer that LEO Canada’s shares are valuable from the fact that Mr. Kamran is fighting tooth and nail to retain control of the impugned shares at the heart of the action,” Andersson wrote in his factum, as quoted by the decision.
   But Kamran said the shares were not an “appropriate asset” and that the Bitcoin wallet balance “shows only a negligible amount and that it has previously shown a negative balance.”

George ordered Andersson to post security of costs in two installments, one of $20,000 and one of $30,000, for a total of $50,000. 

Chris Kinnear Hunter, a lawyer at Lenczner Slaght Royce Smith Griffin LLP, who represented Andersson, said he couldn’t comment on the case.

Keegan Boyd, a partner at Miller Thomson LLP in Toronto, who represented the defendant Atif Kamran, also said he was unable to comment on the case.

Shane D’Souza, a partner at McCarthy Tétrault LLP in Toronto, says the case sets an interesting precedent by giving a sense of whether or not Bitcoin should be considered as something of value by the court.  “[A] couple of years ago, the judge may have not been willing to consider that or admit that kind of evidence,” he says.

Chetan Phull, a lawyer and founder of Smartblock Law PC in Toronto, says there isn’t enough precedent to extrapolate the court’s position on how crypto-currency should be valued.

“The issue of share valuation as impacted by crypto-currency valuation is becoming more important and I am seeing that in my practice for public companies,” says Phull.

Chloe Snider, a partner in the litigation department at Dentons Canada LLP in Toronto, who was not involved in the case, says it’s difficult to know from the decision exactly what evidence was before the court in terms of crypto-currency.

“I do think it’s important where arguments are going to be based on the value of Bitcoin or crypto-currency to be able to explain to the court that value and why you are assigning that value, and I think this may particularly arise in the context of damages — outside the security for costs context,” Snider says.

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