US & Canada Officials File Against Arbitrade

The U.S. Securities and Exchange Commission [SEC] and Canada’s Ontario Securities Commission [OSC] have both released statements related to Arbitrade, with the SEC saying they filed charges for “perpetrating an alleged pump-and-dump scheme involving a crypto asset” while the OSC said they “filed allegations against Troy Richard James Hogg and affiliated companies in relation to an offering of crypto security tokens.”

SEC Statement

The SEC said, “The Securities and Exchange Commission today filed charges against Arbitrade Ltd., a Bermudan company, and Cryptobontix Inc., a Canadian company, and their principals, Troy R. J. Hogg, James L. Goldberg, and Stephen L. Braverman, and a so-called international gold trader, Max W. Barber, for perpetrating an alleged pump-and-dump scheme involving a crypto asset called “Dignity” or “DIG.”

“As alleged in the SEC’s complaint, between May 2018 and January 2019, Arbitrade and Cryptobontix, through Hogg, Goldberg, Braverman, and Barber, issued announcements falsely claiming that Arbitrade had acquired and received title to $10 billion in gold bullion, that the company intended to back each DIG token issued and sold to investors with $1.00 worth of this gold, and that independent accounting firms had performed an “audit” of the gold and verified its existence.

“As alleged, Arbitrade claimed to have acquired the gold through a purchase transaction with Barber and his company, SION Trading FZE. In reality, according to the complaint, the gold acquisition transaction was merely a sham to boost demand for DIG, thereby allowing Hogg and Goldberg, with Braverman’s assistance, to sell at least $36.8 million of DIG, including to U.S. investors, at prices fraudulently inflated by the public misstatements about the supposed gold acquisition.

“The SEC’s complaint charges the defendants with violating the antifraud and securities registration provisions of the federal securities laws. Specifically, the complaint alleges that: [i] Arbitrade and Cryptobontix violated Sections 5[a] and 5[c] of the Securities Act of 1933, and Section 10[b] of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; [ii] Hogg and Goldberg violated Sections 5[a], 5[c], and 17[a] of the Securities Act, and Section 10[b] of the Exchange Act and Rule 10b-5, and that Hogg is also liable as a control person for Arbitrade and Cryptobontix’s violations of Section 10[b] and Rule 10b-5, and that Goldberg is also liable as a control person for Arbitrade’s violations of Section 10[b] and Rule 10b-5; and [iii] Braverman and Barber aided and abetted violations of Section 10[b] Exchange Act and Rule 10b-5.

“The complaint seeks permanent injunctive relief, disgorgement plus prejudgment interest, and civil penalties against all of the defendants, and officer-and-director bars against the individual defendants. The SEC’s complaint also names SION as a relief defendant seeking disgorgement plus prejudgment interest.

“The SEC’s investigation was conducted by David Staubitz and Crystal Ivory in the Miami Regional Office, and was supervised by Chedly C. Dumornay, Fernando Torres, and Glenn S. Gordon. The SEC’s litigation will be led by Alice Sum and supervised by Teresa Verges. The SEC acknowledges the assistance of the Ontario Securities Commission.”

OSC Statement

The OSC said, “The Ontario Securities Commission [OSC] today filed allegations against Troy Richard James Hogg and affiliated companies in relation to an offering of crypto security tokens that raised US$51 million from investors.

“The OSC alleges that from May 2017 to June 2019, Hogg, an Ontario resident, and his companies Cryptobontix Inc., Arbitrade Exchange Inc. and Arbitrade Ltd. promoted and sold a crypto asset named Dignity token [formerly Unity Ingot] to investors around the world.

“According to the allegations, Hogg and his companies defrauded investors with false and misleading statements in promotional materials. These statements included false claims that gold bullion supported the value of Dignity tokens.

“The OSC alleges that Hogg and his companies further defrauded investors by diverting and depleting a significant amount of invested funds for purposes unrelated to the crypto security tokens, such as purchasing real estate and making payments to companies controlled by Hogg.

“The OSC also alleges that, contrary to Ontario securities law, Hogg and his companies did not file a prospectus with respect to the distribution of the Dignity token and did not obtain the necessary registration with the OSC to engage in trading activities.

“The OSC acknowledges the assistance provided in this investigation by the U.S. Securities and Exchange Commission [SEC], which conducted a parallel investigation of this matter. Today, the SEC announced charges filed in the United States District Court Southern District of Florida against Hogg and several U.S. residents.”

The OSC ‘Statement of Allegations’ also said, “While some investor funds were applied to purchasing and operating crypto asset mining equipment, a significant amount of investor funds were used and depleted for various other purposes unrelated to the UNY/DIG token, including” and listed matters including “purchasing real property located in Hamilton, Bermuda known as ‘Victoria Hall.”

Bermuda Government Statement

A Government spokesperson said, “The move of the Security Exchange Commission [SEC] and Ontario Securities Commission [OSC] to charge Arbitrade and its Ontario-based sister company Cryptobontix with operating a ‘pump and dump’ scheme is an unfortunate development.

“The principals of Arbitrade came to Bermuda pledging to get regulated under our then developing regulatory frameworks, as well as to fund and support various beneficial programs. Unfortunately, those pledges went unfulfilled, and they did not seriously pursue licensing under our regime once it became operational.

“It should be noted that their actual coin offering was made in Ontario by the sister company Cryptobontix and they did not conduct an offering or any digital asset business from Bermuda. Arbitrade formed a company, purchased a building and actively promoted their intent to get licensed.

“The company underwent and passed the same due diligence that any entity would undergo to form a company or purchase a building in Bermuda; the same due diligence which allowed them to form a company and purchase a hotel in Ontario.

“A string of companies expressed great interest in the developing regulatory framework, but ultimately they only wanted to promote their intent to get regulated while having had no serious intention of actually doing so; Arbitrade is one such company.

“Since that time, we have learned to leverage the strength of the regulatory frameworks we have developed and no longer entertain the bold pledges of companies that express an intent to get licensed but have not yet done so.

“We have turned a significant corner in the development and progression of our fintech industry and, as evidenced by the 16 licensed Digital Asset Businesses and seven [7] licensed Digital Asset Insurers, we have developed a stable of companies who have fulfilled their pledges to get regulated and are actively investing in Bermuda creating jobs for Bermudians.

“Should the principals behind Arbitrade be subject to a judgement or settlement that causes them to forfeit their assets, we pledge to work with the SEC and OSC to assist them in the recovery and sale of any such Bermuda assets such as Victoria Hall to ensure the proceeds are returned to the investors.”

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