Court Rules Crypto Exchange Not Liable for $480K Scam Loss

The legal battle centered on Victoria resident Yan Li Xu, an accountant who opened an account with Calgary-based NDAX Canada on April 10, 2023, after being persuaded by an online acquaintance to invest in a scheme promising returns of up to 1% per day. To fund this investment, Xu took the drastic step of remortgaging her home and borrowing money from a friend, depositing C$671,000 into her NDAX account between April 11 and May 17, 2023, all of which she used to purchase Ethereum.

When Xu attempted to transfer her Ethereum to an external wallet, NDAX initiated a comprehensive warning protocol. The exchange’s compliance measures included a recorded phone call on April 18, 2023, where an employee explicitly warned that the transaction “exhibited risk factors” and would be escalated for review. Despite this initial alert, Xu sent multiple emails demanding NDAX “proceed with the withdrawal without delay,” growing increasingly insistent and threatening legal action if the company didn’t comply.

NDAX escalated its warnings further, providing Xu with a written risk disclosure, a secondary confirmation notice, and two additional follow-up phone calls. Crucially, one of these calls came from compliance officer Julia Baranovskaya, who explicitly warned Xu that she was likely “being scammed.” After providing these four separate warnings, NDAX ultimately processed Xu’s instructions, resulting in the transfer of her Ethereum to the scammer’s wallet and the complete loss of her investment.

In her written judgment released Monday, Justice Lindsay LeBlanc of the BC Supreme Court systematically dismantled Xu’s case against NDAX. The judge emphasized that while Xu’s losses were “regrettable,” “no liability rests” with the crypto exchange. Justice LeBlanc noted that NDAX was properly registered as a money service business with Canada’s Financial Transactions and Reports Analysis Centre (FINTRAC), establishing its regulatory compliance foundation.

The court found particularly compelling the sequence and clarity of NDAX’s warnings. Justice LeBlanc stated the exchange’s alerts “could not have been clearer” in their messaging about the scam risk. The recorded phone calls, written disclosures, and explicit statements from compliance personnel created what the court determined was a reasonable and thorough warning system that met the exchange’s obligations to its customer.

This ruling establishes important precedent regarding the limits of crypto exchange responsibility in Canada. The judgment suggests that when platforms implement robust warning systems and compliance protocols, they cannot be held liable for customers who choose to ignore explicit fraud alerts. The decision places significant responsibility on investors to heed warnings from regulated exchanges, even when pursuing potentially lucrative investment opportunities.

Xu’s case emerges against a backdrop of intensified regulatory scrutiny of cryptocurrency platforms across Canada. Earlier this week, the country’s financial intelligence agency imposed a record C$176.9 million fine on a Vancouver-based crypto platform for violating anti-money laundering laws. That penalty, the largest ever imposed on a crypto company registered in Canada, cited thousands of unreported suspicious transactions linked to serious crimes including child exploitation, ransomware, and sanctions evasion.

The contrasting outcomes between the NDAX case and the recently fined Vancouver platform highlight regulators’ nuanced approach. While exchanges face severe consequences for compliance failures and inadequate monitoring, the NDAX ruling demonstrates that platforms following proper protocols receive judicial protection. This dual approach signals Canada’s maturing regulatory framework for cryptocurrency, balancing consumer protection with reasonable expectations for exchange responsibility.

For Canadian crypto investors, the ruling serves as a stark reminder that regulatory protections have limits. The case illustrates that even when using FINTRAC-registered platforms like NDAX Canada, investors bear ultimate responsibility for their decisions, particularly when ignoring multiple explicit warnings. As Canada continues to refine its crypto regulatory landscape, this decision establishes clear boundaries for exchange liability while emphasizing the importance of investor due diligence in an industry still grappling with sophisticated scams and fraud schemes.