Tribunal sets sanctions in record crypto fraud

Panel orders more than US$50M in disgorgement, plus $5M in penalties and costs

In the largest crypto fraud case brought by Canadian regulators to date, Ontario’s Capital Markets Tribunal has ordered US$51.7 million in disgorgement and $4.5 million in penalties against the perpetrators of a scheme that defrauded investors in digital tokens that were supposed to be backed by gold.

In June, the regulatory tribunal found that Troy Richard James Hogg, and various companies — Cryptobontix Inc., Arbitrade Exchange Inc., Arbitrade Ltd. (Arbitrade Bermuda), T.J.L Property Management Inc. (TJL), and Gables Holdings Inc. (Gables) — fraudulently promoted and sold digital tokens, which they falsely claimed were backed by audited gold reserves, to investors around the world.

It also found that they misappropriated US$36.9 million of investor funds, which they claimed would be used to purchase crypto mining equipment, and that Hogg, Cryptobontix, and Arbitrade engaged in unregistered trading and an illegal distribution of securities.

On Thursday, the panel handed down its sanctions in the case — permanently banning all of the respondents, ordering more than US$51 million in disgorgement, $4.5 million in penalties and $667,605 in costs.

The sanctions were somewhat lower than what the Ontario Securities Commission (OSC) sought.

The provincial regulator asked for $8.5 million in penalties against the various respondents, arguing that the various corporations were all separate legal entities and should be sanctioned individually.

However, the tribunal found that Hogg was solely in control of Arbitrade Exchange, Cryptobontix, Gables and TJL, so penalties sought against them effectively amounted to seeking penalties against him.

It concluded that Hogg and his companies should be jointly liable for $2.5 million in penalties, with another $2 million against Arbitrade Bermuda.

The OSC also sought US$51.7 million in disgorgement, representing the money raised from investors, and another $2 million to account for the proceeds of the sale of real estate by two of the companies, TJL and Gables.

While the tribunal agreed to order the US$51.7 million in disgorgement for the money raised from investors, it rejected the call for an extra $2 million, concluding that the OSC failed to establish a causal link between those assets and their regulatory violations.

Instead, the panel ordered that Arbitrade Bermuda disgorge US$41.6 million, with Hogg and Cryptobontix jointly liable for US$7.8 million of that amount; and, another US$10.1 million against Hogg.