An Ontario court has upheld decisions by the Capital Markets Tribunal, which found that a software engineer and his companies breached securities rules and defrauded investors in offerings of crypto-tokens that they claimed would be backed by gold.
In 2024, the regulatory tribunal ruled that Troy Richard James Hogg and his companies, Arbitrade Exchange Inc., TJL Property Management and Gable Holdings, violated securities rules when they raised about US$51 million from investors by selling crypto tokens that were to be backed by gold bullion in unregistered offerings.
The panel found that the tokens amounted to securities, that the offerings violated securities rules and that investors were misled about the use of their funds — the proceeds were allegedly used for things other than buying crypto mining equipment, as promised to investors.
Following a hearing on sanctions, the tribunal ordered US$51.7 million in disgorgement, $4.5 million in penalties and $667,000 in costs against the various respondents, along with market prohibitions.
Hogg and the firms appealed the tribunal’s findings to the Ontario Superior Court of Justice, arguing that the panel made errors of law, misinterpreted evidence, denied them procedural fairness — and that the sanctions ordered against them weren’t justified.
Among other things, they argued that the panel erred in finding that the tokens constituted securities and by admitting a transcript of a compelled interview of Hogg that was carried out by investigators of the Ontario Securities Commission (OSC), despite Hogg invoking protections against self-incrimination.
However, the court sided with the regulator, ruling that the compelled interviews could be used at the tribunal’s hearing because that wasn’t a separate proceeding from the investigation.
It also upheld the panel’s finding that the tokens were securities, saying that the panel correctly applied the test to determine whether something counts as a security or not.
“… the panel got the test right. They cited the leading authority of Pacific Coast Coin Exchange and analyzed the four elements of the common enterprise approach to the definition of an investment contract,” the court said in its decision.
The court said the panel took the right approach to making this determination, and that, “Absent a palpable and overriding error, these findings are afforded deference.”
It also rejected an argument that the panel erred by denying a motion from the respondents in the case seeking an adjournment of the proceedings against them after their counsel resigned from the case — after that motion was denied, the respondents didn’t participate in the proceedings against them.
“The appellants submit that the panel’s refusal of the adjournment request was a breach of procedural fairness,” the court noted.
However, it rejected this ground for appeal too, finding that the panel’s decision on an adjournment request should also be granted deference, and that the appellants are essentially asking the court to reconsider the same evidence and reach a different conclusion.
“That is not appropriate,” the court said. “The panel balanced the various competing interests at play and reasonably concluded that the appellants had a reasonable opportunity to prepare their defence. The circumstances on which they relied as a basis for the adjournment were foreseeable and avoidable and did not constitute valid reasons for an adjournment.”
The court also rejected an appeal of the tribunal’s finding that the appellants committed fraud, saying, “There is little merit to this ground of appeal. No palpable and overriding error has been demonstrated by the appellants in the panel’s determination of fraud.”
And, it declined to interfere with the sanctions ordered by the tribunal.