Canadian FinTech startups Wealthsimple and Shakepay are facing a class action lawsuit that claims the two cryptocurrency platform providers allegedly mislead users about hidden fees.
“This legal action has no merit and we will defend our company against it.” – Wealthsimple spokesperson
The lawsuit, which was filed on September 29 in the Superior Court of Québec, is seeking punitive damages of $10 million each from Wealthsimple and Shakepay for misrepresenting the true costs of their cryptocurrency services. The proposed class action suit is currently pending a hearing and has not yet been authorized by the Québec court.
The plaintiff, represented by LPC Avocat, alleges that the companies “bait customers” by advertising their services as “commission-free,” giving the general impression that there are no out-of-pocket costs for buying or selling crypto on either of Wealthsimple and Shakepay’s platforms.
When reached for comment, a Wealthsimple spokesperson provided a statement response to BetaKit.
“We have always been transparent about what we charge for our services – that’s our commitment to our clients,” the statement reads. “This legal action has no merit and we will defend our company against it.”
A Shakepay spokesperson also provided a statement response to BetaKit: “We have always put transparency at the forefront of everything we do. That’s a commitment we’ve made to ourselves and our customers. This legal action has no merit and we will fight it before the courts.”
Initially starting out as a stocks and exchange-traded funds (ETFs) trading platform, Wealthsimple expanded its services to offer crypto trading in 2020. At the time of publication, Wealthsimple’s website states that it charges a 1.5 to 2 percent fee per transaction for its crypto trading accounts. If a user places an order to buy $100 worth of Bitcoin for example, and the trading fee is 1.5 percent, they will be charged $1.50 for the transaction. Wealthsimple told BetaKit that these fees have been in effect since its crypto offering launched.
The class action lawsuit alleges that “expressing a range of fees and charging a price that exceeds the lowest of those expressed” is prohibited by both the Competition Act and Québec’s Consumer Protection Act.
According to the suit, Shakepay and Wealthsimple keep the spreads (the difference between the current market price for the asset and the price you buy or sell that asset for) of the cryptocurrencies offered on their platforms “intentionally large” to collect a hidden commission or fee from its users. Further, the suit alleges that the prices displayed by the defendants on their platforms are not determined by the market, but by the “voluntary decision of [Wealthsimple and Shakepay] as to how much money they want to make on a transaction.”
Founded in 2015 by Amiouny and CTO Roy Breidi, Shakepay began as a Bitcoin-loadable Visa card that users could spend in physical retail stores. In 2018, Shakepay executed a “major pivot” and turned into a crypto exchange.
RELATED: Shakepay secures $44 million Series A led by QED Investors to roll out more Bitcoin products
In a blog post created by Shakepay, which was updated over a week ago, Shakepay describes itself as a commission-free service. Shakepay’s homepage also displays “commission-free” as one of the perks of using its platform. When the plaintiff purchased $200 CAD worth of bitcoin from Shakepay however, they allege they were charged a fee of 1.2 percent.
The filing notes a number of Canadian cryptocurrency exchanges that indicate their commissions and fees structure, naming the likes of Bitbuy, Coinbase, Coinsmart, Binance, and Kraken.
By failing to disclose the precise cost of their services to their users and charging a higher price than what was advertised, the filing alleges that Wealthsimple and Shakepay have violated section 12 and section 224 of Quebec’s Consumer Protection Act.
The class action lawsuit is led by Joey Zukran of LPC Avocat, a Québec-based class action law firm that specializes in consumer rights. In addition to this lawsuit against Wealthsimple and Shakepay, LPC Avocat’s cases have also involved the nation-wide Rogers outage in July.
Over the past year, LPC Avocat has also led cases against ecommerce SaaS provider Lightspeed and payments tech company Nuvei for allegedly issuing materially misleading information to investors.
In Lightspeed’s case, which was re-amended in June and is currently pending for authorization hearing, two investors cite a report published by Spruce Point Capital Management that claims Lightspeed had been concealing its “massive organic decline,” failed to make required goodwill impairments, and played with the reporting of its revenues and earnings.
Another report by Spruce Point also spurred a class action lawsuit against Nuvei. In this report, Spruce Point alleged that Nuvei has covered up a “pattern of business failures, lack of organic growth, and a web of relationships with individuals connected to major Ponzi Schemes and alleged fraudulent activities.”
UPDATE 03/10/2022: This article has been updated with comment from Shakepay.