OSC settles allegations relating to cryptocurrency tokens

On January 26, 2024, Ontario’s Capital Markets Tribunal (the Tribunal) approved a settlement [PDF] in the matter of Nicholas Agar and Paul Ungerman (the respondents), representing the first time the Ontario Securities Commission (OSC) has settled allegations relating to the promotion and sale of cryptocurrency tokens.

Although the Tribunal was clear that it was not adjudicating whether a cryptocurrency token constitutes a security, this matter highlights the OSC’s commitment to enforcing the Securities Act (the Act) in respect of cryptocurrency assets, notwithstanding that the status of such assets under the Act is still unclear.


As is typically the case in OSC settlements, the settlement agreement came before the Tribunal on the basis of a set of agreed facts. The parties agreed that between 2018 and 2022, the respondents and the corporate entities they controlled (the Axia Entities) created and raised approximately US$41 million from investors worldwide through the sale of cryptocurrency tokens (Axia Coin), including US$9 million from over 200 Ontario investors (the Axia Project). The respondents facilitated the sale of Axia Coin and/or future entitlements to Axia Coin to Ontario investors in various ways. The Axia Project was initially operated through an Ontario company controlled by the respondents before moving offshore in 2019.

The respondents continuously disseminated promotional materials for Axia Coin and actively promoted its profitability, including claims about its unique “tokenomics” that allegedly provided a “safe haven” for purchasers and increased the value of Axia Coin over time. The respondents also promoted that Axia Coin had a purported asset reserve of US$29 billion, was the world’s first asset-supported or -backed global cryptocurrency and would be tradeable on a trading platform to be built on their network. At the time, Axia Coin was traded on third-party exchanges with promises of listings on further exchanges.

In October 2022, the respondents announced the suspension of all Axia Coin sales. In March 2023, they announced the beginning of efforts to wind down the Axia Project. As part of this wind down, less than US$10 million of the US$41 million raised remained for distribution to investors.

The settlement agreement

On January 10, 2024, OSC Staff issued a Statement of Allegations alleging that the respondents committed various breaches of the Act in connection with the Axia Project and that they misled Staff in the course of Staff’s investigation into the matter. Also on January 10, 2024, the parties entered into a settlement agreement [PDF].

In this agreement, the respondents acknowledged and admitted that they, and Axia Entities as applicable: (i) made misleading or untrue statements in contravention of ss. 126.2(1) of the Act, (ii) breached the registration and prospectus requirements under ss. 25(1) and s. 53 of the Act, (iii) made a number of misleading, incomplete or untrue statements to OSC Staff about the nature and extent of the business activities of the Axia Project in contravention of ss. 122(1)(a) of the Act, (iv) authorized, permitted or acquiesced in Axia Entities’ non-compliance in contravention of s. 129.2 of the Act and (v) engaged in conduct contrary to the public interest.

The parties agreed that

  • Axia Coin are securities
  • the respondents and Axia Entities engaged in the distributions of securities without filing a preliminary prospectus or prospectus and without an applicable exemption from the prospectus requirement
  • the respondents and Axia Entities engaged in, and held themselves out as engaging in, the business of trading in securities without being registered to do so and without an applicable exemption from the registration requirement

Each of the respondents agreed to pay an administrative penalty of $550,000 to the OSC, as well as disgorgement and a contribution toward the cost of Staff’s investigation. They also agreed to lifetime trading and officer/director bans.

The Tribunal’s reasons for approval

The Tribunal approved the settlement, finding that the terms of the settlement agreement fall within a range of reasonable outcomes in the circumstances and that the agreement properly reflects the principles underlying the application of sanctions, including recognition of the seriousness of the misconduct and the importance of fostering investor protection and confidence in the capital markets.

In reaching this conclusion, the Tribunal noted the novelty of the matter, including that it represents the first time the OSC is settling allegations relating to the promotion and sale of cryptocurrency tokens and that the Tribunal has not previously decided any contested matters in relation to the promotion and sale of cryptocurrency tokens or the circumstances in which they may be considered a security. For the purpose of the settlement agreement, the parties agreed that the tokens were securities. The panel noted that they had not had the benefit of argument over the attributes of the token and whether it is properly characterized as a security. Nevertheless, the panel held that the parties had “admitted and agreed to circumstances that justify” the imposition of the agreed-upon sanctions.

Key takeaways

While the impact of this settlement on future OSC investigations and Tribunal decisions relating to cryptocurrency tokens remains to be seen, it nonetheless reinforces the seriousness with which the OSC will treat contraventions of Ontario securities laws in the context of cryptocurrencies and the enforcement of those laws irrespective of where businesses are domiciled.