Canadian judge says crypto platform not responsible after user ignored scam alerts

A British Columbia court has ruled that a Canadian cryptocurrency exchange was not responsible for a customer’s C$671,000 (US$480,000) loss after the woman ignored several warnings that a scam was targeting her.

Justice Lindsay LeBlanc of the British Columbia Supreme Court dismissed a lawsuit brought by Victoria resident Yan Li Xu against Calgary-based exchange NDAX Canada last Monday, ruling in favor of the platform. The Supreme Court Justice said NDAX fulfilled its duties and acted appropriately to prevent her from being defrauded.

NDAX issued four warnings before the transfer

According to the written judgment released on Monday, Xu transferred more than C$671,000 in digital assets through NDAX to an external wallet for an online investment opportunity, which later turned out to be fraudulent. 

NDAX, registered as a money service business with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), had given Xu four warnings about potential fraud before she completed the transactions.

Justice LeBlanc wrote that NDAX identified “suspicious financial activity and cautioned the plaintiff not to proceed, but the plaintiff did not heed the warning.”

The first warning was issued when Xu accepted the exchange’s Crypto Risk Disclosure, acknowledging that crypto transactions are irreversible. Xu “confirmed to the defendant she had received and understood the Crypto Risk Disclosure by clicking accept on these platform pages.”

A second alert soon followed, reminding Xu that crypto withdrawals could not be undone once processed. The disclosure stated: 

“I understand crypto asset withdrawals are final and irreversible. NDAX will not be liable for losses from my inaccurate information or for delays from network issues outside NDAX’s control.” Xu clicked yes again.

The third came on April 18, 2023, when an NDAX employee personally called Xu to verify the transaction. During that conversation, the employee explicitly warned her that she was “likely being scammed” and strongly advised her not to proceed. 

Xu insisted on continuing, leading the staff member to escalate the matter due to “risk factors.” The phone call, which was recorded, formed part of the court evidence.

“I find that the defendant’s warnings to the plaintiff could not have been clearer,” Justice LeBlanc wrote in her ruling.

The fourth and final warning came from NDAX compliance officer Julia Baranovskaya, who called Xu again to confirm she understood the repercussions. Baranovskaya explained to Xu she “might be the target of crypto fraud” and reiterated that once the transfer was made, it could not be reversed.

“Ms. Baranovskaya testified that the defendant did not know who controlled the recipient wallet as that information was not known to the defendant and all they could do was warn the plaintiff that the First Transaction exhibited signs of potential fraud. This evidence was also unchallenged,” Judge LeBlanc surmised.

During the conversation, Xu assured the officer that she was experienced in financial matters. She reportedly said she had traded stocks for over 20 years, was an accountant by profession, and was using her own investment savings. 

NDAX fulfilled its obligations, Canadian court rules

Justice LeBlanc concluded that NDAX had gone beyond reasonable measures to protect the customer. “While the plaintiff’s losses are regrettable,” she wrote, “I find no liability rests with the defendant.”

The judgment also asserted NDAX had acted responsibly by flagging suspicious activity, communicating directly with the customer, and providing written and verbal warnings. 

Xu’s lawsuit had argued that NDAX should have blocked her transaction altogether to prevent the loss, to which the Judge said:

“The plaintiff has failed to establish that the defendant breached its duty of care and I find that, in any event, the defendant did not cause the losses experienced by the plaintiff.”

Canada tightens crypto oversight

The ruling comes as Canada’s regulators intensify scrutiny of cryptocurrency trading platforms and compliance failures. Authorities have been pushing for tighter enforcement of anti-money laundering (AML) and counter-terrorist financing laws in the digital asset industry both locally and internationally.

As reported by Cryptopolitan on Wednesday, the Financial Transactions and Reports Analysis Centre of Canada announced a record C$176.9 million penalty against a Vancouver-based cryptocurrency platform, the largest fine in its regulatory history.

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