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Crypto Crackdown: OSC Enforcement in 2022 and Predictions for 2023

This article originally appeared in our Canadian Securities Litigation: Trends to Watch 2023 publication, which provides an in-depth overview of the most significant developments in the Canadian securities litigation landscape in 2022 and trends to watch for in 2023. Download the full publication here.


Financial regulators across the globe continue to grapple with the evolving and broadening crypto asset ecosystem and its impact on financial markets. In Canada, securities regulators have used a combination of a “cooperative” regulatory compliance regime and enforcement actions to manage systemic risk relating to digital assets. In the wake of recent high-profile failures in the crypto sector, we anticipate that Canadian securities regulators will continue to tighten compliance requirements and increase their enforcement activities.

Throughout 2022, the Ontario Securities Commission (OSC) was active in enforcement against crypto asset market participants. These enforcement efforts focused primarily on market intermediaries, specifically the operators of online platforms (Crypto Trading Platforms or CTPs), which allow clients to buy, sell and hold crypto assets and use margin and derivatives to gain leveraged exposure to crypto assets. The OSC also utilizes cooperation arrangements with securities regulators globally as part of these enforcement initiatives. Recently, the OSC cooperated with the US Securities and Exchange Commission (the SEC) to commence an action against an Ontario resident and his affiliated companies for “a fraudulent offering of crypto security tokens” to investors around the world. We expect the OSC to bring similar enforcement actions in 2023.

This article provides an overview of enforcement actions taken by the OSC in 2022.

Crypto Trading Platforms

On March 29, 2021, the Canadian Securities Administrators (CSA) published Staff Notice 21-329 Guidance for Crypto-Asset Trading Platforms: Compliance with Regulatory Requirements (SN 21-329), clarifying that securities laws apply to CTPs that “facilitate or propose to facilitate the trading of…instruments or contracts involving crypto assets… (Crypto Contracts)” in cases where the CTP provides custody, services for the crypto assets traded on the platform. SN 21-329 also reminded platforms that offer “traditional” derivative products that provide exposure to crypto assets that they are subject to existing regulatory requirements and they should contact their local CSA member to discuss approaches to compliance with securities law.

The same day, the OSC issued a press release notifying all CTPs that currently offer trading in derivatives or securities to clients in Ontario that they must bring their operations into compliance with Ontario securities laws or face potential regulatory action. The OSC instructed all CTPs to contact OSC staff to start compliance discussions by April 19, 2021.

The OSC stayed true to its threat and from May to August 2021, the OSC announced proceedings against four foreign-domiciled CTPs that offered leveraged crypto asset investment products to retail investors in Ontario and had not engaged in any efforts to bring their operations into compliance with Ontario securities laws. In 2022, orders were issued against all four platforms: KuCoin and ByBit in June, and Poloniex and OKX in October. All four orders imposed significant monetary penalties on the CTPs relating to their past conduct, but the severity of market restrictions varied based on the extent to which the platform cooperated with the OSC in its investigation.

KuCoin and Poloniex did not participate in the proceedings, resulting in adverse inferences and factual findings by the Tribunal. These platforms were subject to administrative penalties and disgorgement orders in the range of US$2 to $3.5 million, costs of investigation and hearing, and permanent bans from the Ontario capital markets. The Panel also concluded that all spot, margin and derivative products offered on the platforms were “investment contracts” and therefore securities, based on the test established by the Supreme Court of Canada in Pacific Coast Coin Exchange.

In contrast, ByBit and OKX cooperated with the OSC’s investigation and negotiated settlements with the OSC. Each platform agreed to disgorge revenues generated from Ontario accounts and pay costs of the proceeding. Each platform also gave an undertaking to wind down most of its existing Ontario business and bring its operations into compliance by pursuing registration under Ontario securities laws. If at any time during registration discussions, the OSC communicates to the CTP that it will not be feasible for it to operate in a manner that is compliant with Ontario securities laws, the CTP agrees that it will completely wind down its Ontario operations.

Other global CTPs exited Ontario in 2022 without having formal proceedings commenced against them. On March 17, Binance Holdings Limited and Binance Capital Markets Inc. (together, Binance) gave an undertaking to the OSC that effectively prohibits Binance from offering any services in Ontario (the Binance Undertaking). The Binance Undertaking holds Binance accountable for taking steps to address concerns arising from events beginning in December 2021, when Binance falsely notified investors that it was allowed to continue operations in Ontario after previously announcing its withdrawal from Ontario in May 2021. Then, in January 2022, Binance confirmed to OSC Staff that trading restrictions were in place for Ontario accounts on the Binance platform, when in fact Ontario accounts were able to trade. The Binance Undertaking required Binance to adopt procedures for preventing Ontarians from opening new accounts, restricting existing Ontario accounts to “liquidation only”, reimbursing withdrawal fees charged to Ontario clients, retaining a third party compliance consultant and reporting to the OSC. The Binance Undertaking also acknowledged the OSC’s reservation of its rights to bring enforcement proceedings against Binance for other misconduct.

Throughout late 2021 and 2022, many other global CTPs have recognized that offering services in Ontario comes with a degree of enforcement risk similar to the US, and have restricted Ontarians from accessing their platforms, such as Bitmex, Bittrex, Bitfinex, Huobi and others. Generally, these CTPs operate from offshore jurisdictions and offer margin, derivatives and other leveraged products that provide exposure to crypto assets. It is noteworthy that FTX stopped opening new accounts in Ontario in late 2021 and restricted access to margin and derivatives by existing retail investors in Ontario in early 2022. These restrictions may have reduced the losses experienced by Ontario residents from the collapse of FTX relative to their neighbours in other Canadian jurisdictions.

The OSC’s willingness to enforce against unregistered foreign CTPs is similar to that of the SEC and the US Commodity Futures and Trading Commission (CFTC). However, the OSC distinguished itself from US regulators by offering a clear path to compliance, albeit one that is narrow and restrictive. The OSC has also spearheaded the CSA’s emerging regulatory regime for CTPs as securities dealers and marketplaces, under which ten registered CTPs have agreed to terms and conditions (T&C) of registration intended to reduce investor protection risks associated with CTP operations by imposing detailed obligations relating to crypto asset custody, insurance, risk disclosure, product due diligence and investment limits on the Canadian dollar value that retail investors may invest in crypto assets other than bitcoin, Ether, Litecoin and Bitcoin Cash.

The OSC (and other CSA members) are in discussions with numerous other CTPs that have expressed a willingness to register under securities laws in order to continue to service Canadian clients. In 2022, the CSA announced a new requirement for CTPs that are working toward registration under securities laws to provide a publicly available undertaking (a Pre-Registration Undertaking or PRU) in order to continue to provide services in Canada while pursuing registration and subsequently announced that it is strengthening its oversight of CTPs by imposing a deadline for all CTPs offering services in Canada to provide a Pre-Registration Undertaking, cease operating in Canada or face enforcement action. In the wake of recent insolvencies of a number of CTP’s, the CSA implemented started a 30 day countdown for unregistered CTPs and an enhanced PRU with stricter requirements regarding custody and segregation of assets, blanket prohibitions on offering margin or leverage and prohibitions on offering value referenced crypto assets (commonly known as stablecoins).[i]

Crypto Security Token Issuers

The OSC recently commenced the first enforcement proceedings against issuers of security tokens.

On September 30, 2022, the OSC commenced proceedings against an issuer of security tokens, issuing a Statement of Allegations against Ontario resident Troy Richard James Hogg and his affiliated companies in relation to a US$51 million fundraise for Dignity token (DIG, formerly United Ingot/UNY) from investors around the world (Hogg). The OSC described the case as “a fraudulent offering of crypto security tokens that serves as a cautionary tale to investors interested in the crypto asset sector.”

The OSC alleges that beginning in 2017, Hogg and his companies promoted and sold crypto asset tokens to investors without filing a prospectus or obtaining the necessary registration with the OSC. While raising funds, Hogg and his companies also allegedly defrauded investors by using false or misleading statements in promotional materials, including claims that the value of the UNY/DIG token was backed by $10 billion in gold bullion, a claim that was not supported by documents reviewed by OSC Staff. The promotional materials also reportedly claimed each UNY/DIG would be backed by a floor price of US$1 worth of gold, presenting the tokens as investments “with limited risks and maximum potential.”

OSC Staff also allege that Hogg and his companies diverted investor funds to purchase luxury boats, real estate in Ontario and the Caribbean, and transferred funds to other companies controlled by Hogg. In addition, crypto asset mining equipment intended for the benefit of holders of the UNY/DIG token was transferred to Hogg for his personal use. 

OSC Staff seek sanctions against Hogg and his companies, including permanent bans from trading in securities or derivatives or acquiring securities in Ontario, acting as a director or officer of any issuer or any registrant, or from acting as a registrant or promoter. Staff are also seeking a disgorgement of all amounts obtained as a result of non-compliance with Ontario securities laws, an administrative penalty of not more than $1 million for each failure to comply with Ontario securities law and payment of all costs of the investigation. In the meantime, the proceeds of sales of certain properties were placed in the custody of the Accountant of the Ontario Superior Court of Justice.

On January 17, 2023, the OSC commenced a second proceeding against a security token issuer, issuing a Statement of Allegations against former Ontario residents Shorupan Pirakaspathy and Warren Carson and their affiliated companies (collectively, GX) in relation to the sale of GXTokens to Ontarians. In what the OSC describes as a “multi-level marketing scheme”, they allege that GX enticed members of the public to become “brokers” and earn commissions by selling tokens using GX’s online operating system. GXTokens were promoted as investments, with the promise of access to products and features that were “in development”.

OSC Staff also allege that GX raised $280,000 from Ontario investors through the sale of GXTokens and equity in GX legal entities, which is a relatively small amount of funds compared to typical OSC enforcement proceedings. However, it is likely that the OSC proceeded with this matter to send a warning, as the alleged misconduct of GX exemplifies the fraud and scams, which plague the crypto asset sector. The sanctions sought by Staff in the allegations against GX are similar to those sought in Hogg.

These two recent enforcement proceedings represent a departure from the OSC’s primary focus on market intermediaries such as CTPs, illustrating that the OSC will proceed directly against a token issuer when it determines it is in the public interest, to protect investors and send a deterrent message to others considering similar activities.

On December 12, 2022, the CSA publicly announced for the first time its view that “stablecoins, or stablecoin arrangements, may constitute securities or derivatives.” Many registered CTPs currently offer Canadian clients the ability to trade in stablecoins. Registered CTPs, as well as CTPs that provide PRUs, are prohibited from offering Canadian clients the ability to trade in or obtain exposure to crypto assets that are themselves securities or derivatives and are required to have policies and procedures in place to make this determination. To date, the OSC has not brought an enforcement action against any stablecoin issuer or promoter.

Cross-Border Collaboration with the SEC

In Hogg, the OSC thanked the SEC for its assistance with the investigation, explaining that the SEC had conducted a parallel investigation and filed charges in the US District Court for the Southern District of Florida against Hogg and several US residents.

The OSC and SEC have a long history of collaboration, including in the SEC’s 2019 complaint against the Ontario-based crypto asset issuer Kik Interactive Inc. (Kik), which included details regarding Kik’s discussions with OSC Staff prior to commencing its offering of Kin tokens in the US. The SEC obtained a final judgment against Kik in October 2020, including a permanent injunction and US$5 million penalty.

As Canadian market participants are likely aware, 2022 saw a large expansion of the SEC’s Crypto Assets and Cyber Unit, as well as numerous enforcement actions against crypto asset issuers and promoters. The SEC achieved notable success in the decision made by US District Court for the District of New Hampshire (the Court) on November 7, 2022, SEC v. LBRY, Inc. (LBRY). The Court held in a summary judgment that the digital tokens offered and sold by LBRY were unregistered securities based on its application of the “Howey Test”[ii] for an investment contract. In LBRY, there were no allegations of fraud or misappropriation of investor funds. However, the promotional statements made by LBRY’s senior management team and their significant holdings of pre-mined LTC tokens persuaded the court that purchasers of LTC were in a common enterprise with LBRY and expected profits to come significantly from LBRY’s efforts in continuing to develop its platform. 

Notwithstanding LBRY, the SEC’s 2022 crypto efforts have been criticized. For example, critics point out that even the SEC’s most successful cases, such as its US$100 million settlement with BlockFi Lending LLC (BlockFi), fail to protect retail consumers from CTP counterparty risk. In November 2022, nine months after the SEC settlement, BlockFi filed for Chapter 11 protection. The SEC also did not appear to take steps against Celsius or FTX.US, the collapses of which exposed US customers to millions in losses.

To date, the OSC has not joined the SEC in commencing proceedings against LBRY or Ripple Labs, Inc., notwithstanding the likelihood that both underlying tokens (LBRY’s LBC and Ripple’s XRP) were purchased by Ontario residents. However, it is likely that the cross-border collaboration between the OSC and SEC continues to expand to deter offerings of crypto assets that could be characterized as securities on both sides of the border.

Looking Ahead

The OSC’s 2023-24 Statement of Priorities confirms that it will continue to bring enforcement actions against crypto asset market participants to address non-compliance with securities laws, and that it will continue to add crypto firms to investor warning lists. The OSC’s planned outcomes include increasing “public awareness of these complex products, platforms and potential frauds/scams”, and achieving “an appropriate balance in supporting novel businesses and fostering innovation and competitive capital markets while promoting investor protection.”

We expect the CSA to continue to monitor market developments and implement stricter Pre-Registration terms, together with more stringent custody and segregation requirements for platforms and prohibitions against offering margin or leverage to any client. These more stringent requirements pave the way for the OSC to commence further enforcement actions against platforms as well as CTPs that continue to offer services in Ontario without submitting a PRU.

2022 was a busy year for crypto-related enforcement by the OSC, and we expect this trend to continue in 2023.


[i] CSA Staff Notice 21-332 Crypto Asset Trading Platforms: Pre-Registration Undertakings, Changes to Enhance Canadian Investor Protection

[ii] The US Supreme Court in SEC v. W.J. Howey Co., 328 US 293 (1946) and subsequent case law have found that an investment contract (and therefore a security) exists when there is (1) an investment of money (2) in a common enterprise with (3) a reasonable expectation of profits (4) to be derived from the entrepreneurial and managerial efforts of others.