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SEC and Ontario regulator accuse Arbitrade of fraud

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The Securities and Exchange Commission filed charges in the United States District Court for the Southern District of Florida against Hogg et al

The man who brought Arbitrade to Bermuda is fighting two new legal challenges, both filed against him and his company and associates last week in two separate jurisdictions.

The Securities and Exchange Commission filed charges in the United States District Court for the Southern District of Florida on Thursday “against Arbitrade Ltd, a Bermudian 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’.”

Meanwhile, the Ontario Securities Commission has formally accused the businessman of several counts of fraud.

The Securities and Exchange Commission conducted a parallel investigation with the Ontario Securities Commission

In the matter of Troy Richard James Hogg, Cryptobontix Inc, Arbitrade Exchange Inc, Arbitrade Ltd, TJL Property Management Inc and Gables Holdings Inc, the OSC alleged it was a fraudulent offering of crypto security tokens — which raised about $51 million — that serves as a cautionary tale to investors interested in the crypto asset sector.

The SEC and the OSC acknowledged assistance they received from each other as they conducted parallel investigations.

A litigation release from the SEC on Friday said: “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 US investors, at prices fraudulently inflated by the public misstatements about the supposed gold acquisition.

“The SEC's complaint charges the defendants with violating the anti-fraud 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 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.

In a statement out of Toronto, the OSC said: “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.”

Arbitrade Ltd in October 2018 acquired Victoria Hall, on Victoria Street, to be its global headquarters. The building has remained unoccupied.

Mr Hogg created the concept and was an early developer of the project that became Arbitrade, and was a major shareholder and consultant for the company. Cryptobontix was once in majority common ownership with Arbitrade.

(See related legal filings in Related Media)

The Ontario Securities Commission conducted a parallel investigation with the Securities and Exchange Commission