OSC seeks settlement with crypto scheme

The Ontario Securities Commission (OSC) is seeking approval for a settlement with the founders of an unregistered crypto investment scheme that allegedly misled investors and illegally raised millions from them.

On Jan. 26, the Capital Markets Tribunal will hold a hearing to consider a proposed settlement between OSC staff and founders of the Axia Project, Nicholas Agar and Paul Ungerman, amid allegations that they breached securities laws by misleading investors, distributing securities without a prospectus, and trading without registration.

The terms of the settlement will be revealed if the settlement is approved.

None of the allegations have been proven.

According to regulators, the Axia Project, which was initially started in Ontario and moved offshore in 2019, created cryptoassets such as LinkCoin, Axia Aion Network Token and various others, and raised approximately US$41 million from investors worldwide, including about US$9 million from investors in Ontario.

While the project initially sought to create a blockchain-based platform using the Axia Coin as digital currency, regulators alleged that the project was also promoted as an investment opportunity, and they alleged that it misled investors by claiming that its crypto tokens were backed by over US$29-billion worth of real assets (such as real property, precious minerals and gems) to support the value of the Axia Coin.

“In fact, the existence, ownership and value of the assets had not been verified, and the conditions for transfer of the assets to Axia Project were never satisfied,” the OSC said in its allegations.

Ultimately, in early 2023, Axia announced that the project was being wound down.

Regulators say that, of the US$41 million raised from investors, less than US$10 million remains for distribution to investors as part of the wind down.

“Investors in both Ontario and around the world suffered significant financial losses,” the OSC said.

Additionally, the OSC alleged that the project misled regulators when they began making inquiries in 2020, which prevented early detection of the alleged misconduct.

“This matter should serve as a warning that all persons who deal in crypto securities with Ontario investors, wherever the business is domiciled, cannot circumvent compliance with, or evade enforcement of, Ontario securities law by moving their operations offshore and/or misleading the commission about the nature and extent of their operation,” the regulator said in its allegations.