The cryptocurrency market has yet to recover from its all-time highs, and in the wake of its slowed growth, litigation has arisen amongst a popular cryptocurrency exchange. Binance, one of the world’s largest online cryptocurrency asset trading platforms, has been investigated by the Ontario Securities Commission (“Ontario Securities Commission”) for failing to bring its operations into compliance with Ontario law. The decision to bring enforcement proceedings by the Ontario Securities Commission was under judicial review before the Ontario Superior Court of Justice. 

The Business of Binance

Binance has become a major player in the global cryptocurrency market by providing a platform for buying, selling, and trading a wide range of cryptocurrencies, including Bitcoin, Ethereum, Ripple, and many others. Binance has gained popularity due to its user-friendly interface, a wide range of supported cryptocurrencies, and competitive trading fees.

In the past, the Binance platform has been accessible in Ontario. In 2021, the Ontario Securities Commission noted that platforms such as Binance doing business in Ontario were required to bring their operations in compliance with Ontario law. Specifically, the Ontario Securities Commission stated in a letter to Binance that the company was trading securities without being registered with the Ontario Securities Commission, without filing a prospectus with the Ontario Securities Commission (or filing for an exemption), and that Binance was not authorized to carry on business as a marketplace. 

Binance Entered Into Undertaking; Fails Reporting Obligations 

In the matter of Binance Holdings Limited v. Ontario Securities Commission, Binance began compliance discussions with the Ontario Securities Commission and, in the meantime, advised Ontario users that services would cease on December 31, 2021. Nevertheless, on December 29, 2021, Binance informed its users that it could continue offering services past December 31, 2021, as it was in contact with the Ontario Securities Commission. Binance also represented to users and the Ontario Securities Commission that Ontario accounts had restrictions when, in fact, Ontario users could still trade cryptocurrencies on the platform uninhibited. 

In response to a threat of enforcement, Binance entered into an undertaking that the corporation would prevent Ontario users from opening new accounts and prevent trading on all Ontario accounts, as well as reporting and oversight commitments. The undertaking also specified that the Ontario Securities Commission had the right to bring enforcement proceedings, and this reservation of rights was at issue in the application. 

Binance eventually failed its reporting obligations, and the Ontario Securities Commission brought enforcement proceedings. 

Ontario Securities Commission Brings Investigation under the Securities Act

The Ontario Securities Commission served Binance with an Investigation Order under the Securities Act, which set out the reasons for the Order and summoned Binance, requiring the production of information about fees and revenue earned in Ontario. 

Binance sought to revoke the Order by applying to the Capital Markets Tribunal, which found that it did not have jurisdiction. The decision included the Tribunal’s interpretation of the Securities Act, which it interpreted as preventing the Tribunal from revoking an order of the Ontario Securities Commission. There was another route that Binance could use to try to revoke the Order, but it did not do so. 

Was the Reservation of Rights an Abuse of Process?

There were several issues presented to the Court, including: 

• whether the reservation of rights in the undertaking was an abuse of process; and
• whether the summons is overbroad and unenforceable under the Canadian Charter of Rights and Freedoms. 

In the abuse of process argument, the Court noted that since the Ontario Securities Commission undertaking was part of the administrative process, the standard of review was correctness. Binance also argued that it was “manifestly unfair and contrary to the interests of justice to permit the investigation to proceed given the agreement made in the Undertaking.”

The agreement that Binance referred to as the reservation of rights, which allows the Ontario Securities Commission to bring enforcement proceedings, with the exception that enforcement proceedings or temporary orders are precluded by the facts section of the undertaking and as long as Binance “‘remains in compliance with the Undertaking and, has not made any misrepresentations to Staff in respect of the Undertaking.'” The undertaking also included a clarification that enforcement proceedings may be brought for “‘any breach’ of the Undertaking or any misrepresentation made to Ontario Securities Commission Staff’ in respect of the Undertaking.”

Court Refuses to Quash Order 

The Court found that in its entirety, the facts section did not preclude bringing the Order. In the opinion of the Court, the statements of fact in the Order “go well beyond and include” the factual statements in the undertaking, giving rise to the investigation. The reservation of rights also does not apply to misrepresentations in the undertaking, which was explicitly included as an allegation in the Order. 

Overall, the Court was entitled to bring enforcement proceedings, which were not precluded by the undertaking. The exception did not apply, and as such, there was no abuse of process. 

Contact the Lawyers at Milosevic & Associates in Toronto for Advice and Guidance Regarding Cryptocurrencies 

The business lawyers at Milosevic & Associates have extensive experience assisting clients throughout Toronto with corporate disputes, regulatory compliance, and civil fraud matters, including cryptocurrency fraud. Our team also provides clients with comprehensive legal guidance on debt collection and enforcement of foreign judgments. We provide dynamic business law advice and solutions for companies working within the crypto and fintech sectors. To speak with a member of our corporate litigation team to learn how we can assist you, contact us online or by phone at (416) 916-1387.