Toronto-based company Liquid Marketplace, marketing itself as a platform selling fractional ownership of rare collectibles using cryptocurrency technology, has been accused of operating a “multi-layered fraud,” according to the Ontario Securities Commission (OSC). The OSC’s Capital Markets Tribunal announced that it will hold a hearing next month to address allegations that LMP’s top executives illegally diverted millions of dollars in investor funds for personal use and misled regulators.

The three executives facing charges are Ryan Bahadori, CEO; Amin Nikdel, CTO; and Dennis Domazet, former CFO. The OSC alleges these individuals diverted approximately $3 million of the more than $10 million raised from investors, using the funds for personal enrichment. Each could face fines up to $7 million and other penalties.

According to the OSC, the three executives used investor funds to pay for personal expenses, including high-end fashion items, expensive jewelry and watches, and personal health and spa services. The OSC claims Bahadori alone charged nearly half a million dollars to company credit cards for personal expenses.

The OSC also accused the executives of authorizing interest-free loans of at least $550,000 to themselves, including over $10,000 to cover Bahadori’s rent, none of which were repaid.

Bahadori and Nikdel co-founded LMP with YouTube influencer Logan Paul in 2021, in which the later had served as Chief Strategy Officer. LMP sells “LMP Tokens” for 10 cents each, purportedly representing fractional ownership of high-value collectibles such as a 2003 autographed LeBron James jersey patch rookie card. The company claims these tokens represent genuine ownership and that the collectibles are authenticated, appraised, and insured.

However, the OSC alleges that these tokens do not represent legal ownership and that the collectibles are not authenticated, appraised, or insured. The OSC also highlighted that even after it was known that a collector had previously brought fraudulent items to the platform, LMP did not perform due diligence to ensure the authenticity of subsequent collectibles from the same collector.

Nikdel’s LinkedIn profile lists him as a founder or co-founder of four other startups. Domazet’s profile details over 14 years at Deloitte Canada, where he served as the blockchain tax leader before starting his own accounting firm in 2020.

Paul’s involvement brought significant initial attention but also posed risks due to his controversial public persona. Previous ventures associated with him, such as CryptoZoo, faced criticism and accusations of mismanagement.

The OSC alleges that in late 2021, the three executives devised a scheme to make significant payments to themselves through purported consulting companies, all of which included “Kooney” in their names. Over $2.5 million was transferred to these entities, for services identical to the executives’ existing roles at LMP.

The OSC’s investigation also revealed that despite being repeatedly asked about their compensation, the executives underreported their earnings. Bahadori claimed a salary of $102,000 in 2022 and no salary in 2023. However, the OSC found he actually received over $300,000 annually and more than $1.2 million through his consulting company. Similar discrepancies were found for Nikdel and Domazet.

“It was only after the Commission independently discovered these payments and questioned the LMP principals that they admitted to these payments,” the OSC stated.

The company struggled with financial challenges despite multiple funding rounds. Its most recent funding round in August 2023 raised only $525,000, a significant drop compared to earlier investments.

The OSC’s Capital Markets Tribunal has scheduled a hearing for July 31 to address these allegations. As of Friday afternoon, LMP’s website continued to assert that its collectibles are carefully selected, authenticated, and appraised by industry experts.

Information for this story was found via The Globe And Mail and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.