On December 22, 2021, the Ontario Securities Commission (the OSC) recently released the decision of Miner Edge Inc.(Re), 2021 ONSEC 31 (the Miner Edge Decision). Although CSA has published guidance on the application of securities laws to cryptocurrency offerings since August 2017, the Miner Edge Decision is notable as a rare example of the regime being applied in practice.
OSC Staff (Staff) alleged that the Respondents, Miner Edge Inc., Miner Edge Corp. (collectively Miner Edge) and Rakesh Handa, the sole director, shareholder and chief executive officer of Miner Edge, had raised approximately $170,600 from 90 investors through a fraudulent scheme to sell investments in a purported cryptocurrency mining company and misappropriated these funds for personal use, warranting market participation bans, disgorgement and high administrative penalties.
For over one year, Miner Edge and Mr. Handa promoted an investment opportunity in Miner Edge’s cryptocurrency mining operations, through direct solicitations, an online ad campaign and various social media platforms. The promotions falsely represented two Canadian mining locations, a right to participate in profits in the form of an initial coin offering (ICO), the use of investment proceeds for business operations and expected annual returns in excess of 100%. In reality, Miner Edge never engaged in cryptocurrency mining activities, had no operations and was taking no meaningful steps to generate revenue.
A preliminary issue considered by the OSC, was whether the investments sold to investors were considered “securities” as defined under Ontario’s Securities Act (the Securities Act). The OSC determined that the investments marketed should be considered securities. They met all the technical requirements of an “investment contract”, one category of instruments considered to be a securities under the Securities Act: investors invested money, with a view to profit, in a common operation, the success or failure of which was dependent upon the efforts of Miner Edge and Mr. Handa.
In addition to other various contraventions of the Securities Act, the OSC found that the Respondents were engaged in the business of trading in securities without being registered to do so. By distributing and accepting investor funds for the purchase of profit participation rights, the respondents engaged in soliciting and trading securities and expected to, and did receive, financial compensation through the funds from the investors. The Respondents were also found to have engaged in the distribution of securities without filing a preliminary prospectus and without an applicable exemption from the prospectus requirement, and had perpetrated a fraud on investors.
As a result of these numerous contraventions, Staff sought a permanent ban of the respondents from participating in Ontario capital markets, a permanent ban of Mr. Handa from holding officer or director positions, disgorgement in the full amount of $170,600 obtained by the Respondents and an administrative penalty of $500,000. The OSC agreed with the Staff’s requests and ordered the permanent bans, disgorgements and administrative penalties in the interest of the public, along with costs of $100,000 paid to the OSC.
The key takeaway?
The significant growth in the area of cryptocurrency offerings provide new opportunities for businesses to raise capital and for investors to access a broader range of investments. It is crucial, however, that financial technology businesses raising digital funds and participating in initial coin offerings understand what obligations may apply to them and what is owed to their investors under securities laws, ensuring that they are registered and lawfully engaged in the business of trading securities in order to avoid similar consequences.
The author would like to thank Breanne Matheson for their contributions to this article.
 Miner Edge Inc.(Re), 2021 ONSEC 31 [Miner Edge].
 CSA Staff Notice 46-307, Cryptocurrency Offerings, Coin and token offerings (August 24, 2017) [CSA Staff Notice 46-307].
 Securities Act, RSO 1990, c S.5, s.1(a) [Securities Act].
 Miner Edge at para 16.
 Miner Edge at para 29.
 Miner Edge at para 32.
 Miner Edge at para 61.
The author would like to thank Breanne Matheson for her contribution.