Reasons and Decision: Ontario Securities Commission v CoinEx Global Limited

Citation: Ontario Securites Commission v CoinEx Global Limited, 2025 ONCMT 3

Date: 2025-03-06

File No. 2025-03

ONTARIO SECURITIES COMMISSION

(Applicant)

AND

COINEX GLOBAL LIMITED, a company with its main address in Hong Kong, COINEX GLOBAL LIMITED, a Canadian company, COINEX GLOBAL LIMITED, an Estonian company, VINO GLOBAL LIMITED AND HAIPO YANG

(Respondents)

REASONS AND DECISION

(Subsections 127(1) and 127(4.0.2) of the Securities Act, RSO 1990, c S.5)

REASONS AND DECISION

1. OVERVIEW

[1] The Ontario Securities Commission seeks inter-jurisdictional enforcement orders against the respondents, reciprocating orders made by the Québec Financial Markets Administrative Tribunal (or Tribunal administrative des marchés financiers du Québec) (FMAT) in a decision issued on November 14, 2023 (Decision).{1}

[2] The Commission brings this application without notice to the respondents under ss. 127(1) and 127(4.0.2) of the Ontario Securities Act (Act).{2} The Commission filed this application at the same time as a similar application involving other respondents with similar facts bearing Tribunal file number 2025-02. A separate decision was issued for that application.

[3] I find that it is in the public interest to make the orders requested by the Commission, imposing non-monetary sanctions similar to those in the Decision that restrict the respondents' future participation in the capital markets of Ontario.

2. BACKGROUND

[4] The FMAT found that:

a. CoinEx Global Limited (CoinEx) is a company or group of companies with an address in Hong Kong. CoinEx Global Limited (CoinEx Canada) is a Canadian corporation with a head office in Ontario. CoinEx Global Limited (CoinEx Estonia) is an Estonian corporation and Vino Global Limited is a corporation incorporated in Colorado. These companies are indistinct from one another and in effect act as one and the same person;{3}

b. Haipo Yang is an individual with an address in Markham, Ontario who has claimed to reside in Markham, Ontario, despite being neither a Canadian citizen nor a permanent resident. He is the founder of CoinEx, the sole director of CoinEx Canada, the sole member of the board of directors, shareholder and declared beneficiary of CoinEx Estonia, and the incorporator of Vino Global;{4}

c. the respondents offer to the public various crypto asset-related products and programs by operating an online crypto asset trading platform through their website CoinEx.com (the CoinEx Platform);{5}

d. applying the criteria for an "investment contract" security established by the Supreme Court of Canada in Pacific Coast Coin Exchange v Ontario Securities Commission{6} to the relevant facts, a number of these products and programs are investment contract securities under Québec securities legislation;{7}

e. based on the relevant facts and their characteristics, the crypto futures contracts offered by the respondents are "contracts for difference" and derivatives under Québec securities legislation;{8}

f. applying the factors for determining whether a person is acting as a dealer set out in Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations to the relevant facts, the respondents acted as securities and derivatives dealers without being registered in any capacity, contrary to Québec securities legislation;{9} and

g. the respondents distributed securities without having filed a receipted prospectus and without an applicable exemption, contrary to Québec securities legislation.{10}

[5] The FMAT imposed sanctions on all of the respondents that included the following orders (paraphrased below):{11}

a. pursuant to s. 264 of the Québec Securities Act (QSA), denying them the benefit of any exemptions available under the QSA;

b. pursuant to s. 265 of the QSA, prohibiting them from engaging in any activity, directly or indirectly, in respect of a transaction involving securities except for transactions to enable users of the CoinEx Platform to withdraw their assets in the possession or control of the respondents or third parties and to close their accounts there; and

c. pursuant to s. 266 of the QSA, prohibiting them from engaging in the business of securities adviser or acting as an investment fund manager, except for those activities strictly necessary to enable users of the CoinEx Platform to withdraw their assets in the possession or control of the respondents or third parties and to close their accounts there.

[6] In addition, FMAT ordered that:{12}

a. the corporate respondents pay an administrative penalty of $2 million, jointly and severally;

b. Yang pay an administrative penalty of $300,000; and

c. pursuant to s. 273.3 of the QSA, Yang be prohibited from acting as a director or officer of an issuer, dealer, advisor and investment fund manager for a period of 5 years, which was the maximum period that could be ordered under the QSA.

3. ANALYSIS

3.1 Statutory Framework

[7] The Commission brings this application under ss. 127(1) and 127(4.0.2) of the Act. Subsection 127(4.0.2) was added to the Act as part of various amendments on December 4, 2023, that repealed and replaced s. 127(10), the prior provision that permitted the Tribunal to make inter-jurisdictional enforcement orders under s. 127(1) after giving the respondents an opportunity to be heard.{13}

[8] Subsection 127(4.0.2) provides that where a person or company is subject to a prior order of a specified list of securities regulators, the Tribunal may now make various orders listed in s. 127(1) without giving the person or company that is the subject to the order an opportunity to be heard. The addition of s. 127(4.0.2) was part of a number of other amendments that were clearly intended to streamline the process for the recognition by the Tribunal of orders and settlements made by other securities regulators, self-regulatory organizations, and exchanges, as well as for making orders in the public interest in circumstances where a person or company has been convicted by a court of offences relating to securities or derivatives.{14}

3.2 Precondition in s. 127(4.0.2) is met

[9] In this case, the precondition in paragraph 2 of s. 127(4.0.2) of the Act for making the requested orders under s. 127(1) without giving the respondents an opportunity to be heard is clearly met. The respondents are subject to prior orders "imposing sanctions, conditions, restrictions or requirements" made by the FMAT, which is a "securities regulatory authority of another province or territory in Canada" as that term is defined in s. 127(10) of the Act. Further, s. 127(4.0.4) authorizes such orders even where, as is the case here, the prior order of a securities regulator predates the December 4, 2023 amendments to the Act. I am also satisfied that in these circumstances, including given the nature of the requested orders and the fact that the respondents did not participate in the hearing before the FMAT despite being properly notified of the proceeding,{15} it is appropriate to decide this application without giving the respondents an opportunity to be heard.

3.3 It is in the public interest to grant the requested orders

[10] Having found that the precondition in s. 127(4.0.2) is met, I now turn to consider whether it is appropriate to exercise the Tribunal's public interest jurisdiction to make the requested orders pursuant to s. 127(1). This public interest jurisdiction is informed by the purposes of the Act which include the protection of investors and fostering confidence in the capital markets.{16} Orders made under s. 127(1) are protective and preventative and are made to restrain future conduct that is likely to be prejudicial to the public interest in fair and efficient capital markets.{17} I must decide whether sanctions are necessary to protect the public interest in Ontario and then consider what the appropriate sanctions should be.{18}

[11] The guidance from past inter-jurisdictional enforcement decisions of the Tribunal brought pursuant to the former s. 127(10) is equally applicable to inter-jurisdictional enforcement applications brought under s. 127(4.0.2). I accept that I should not look behind or attempt to second-guess the findings made by the FMAT.{19} I also accept that while it is a factor to be considered, a connection to Ontario is not a prerequisite to the Tribunal making a s. 127(1) order.{20} In this case, I note that the CoinEx Platform was accessible throughout Canada and continues to be available to Canadians, with the exception of persons residing in Alberta.{21} I also note that CoinEx Canada is based in Ontario.{22}

[12] Given the factual findings of the FMAT, I conclude that had the respondents engaged in the same conduct in Ontario, it would have constituted a breach of the registration and prospectus requirements under ss. 25(1) and 53(1) of the Act. I am therefore satisfied that it is in the public interest to make orders against the respondents under s. 127(1).{23}

[13] In deciding the appropriate terms of such orders, I have considered the various sanctioning factors that the FMAT considered in its decision as well as the FMAT's factual findings regarding those sanctioning factors. Like the FMAT, I have also considered the importance of general and specific deterrence.{24} The sanctioning factors that the FMAT considered are the same or similar to the factors that the Tribunal has referred to in other cases when making orders in the public interest under s. 127(1). The FMAT found:

a. the misconduct was serious;{25}

b. the respondents were experienced in financial markets;{26}

c. the misconduct has been recurrent and ongoing since 2018;{27}

d. the respondents' operations are extensive, international and involve monthly transaction volumes of billions of dollars and they have claimed to have more than 38,000 Canadian clients who deposited a total value of over USD $67 million;{28}

e. the respondents chose not to comply with applicable securities legislation, which was an aggravating factor;{29}

f. the respondents failed to acknowledge the breaches or their seriousness, did not cooperate with the Québec Autorité des marchés financiers (the regulator), and continued to breach Québec securities laws even after the proceedings before the FMAT had been commenced;{30} and

g. there were no mitigating factors.{31}

[14] I note that the FMAT invoked two prior decisions of this Tribunal that feature similar facts in holding that in the circumstances permanent market participation prohibitions were appropriate.{32}

[15] While not necessarily a requirement, the proposed orders sought by the Commission align with the non-monetary sanctions ordered by the FMAT, to the extent possible under the Act.

4. CONCLUSION

[16] For the reasons set out above, I find that it is in the public interest to permanently limit the respondents' future participation in Ontario's capital markets in order to restrain potential future as well as potentially ongoing misconduct by them that could harm Ontario investors and in order to maintain the integrity of Ontario's capital markets. I also find that it is in the public interest to prohibit Yang from acting as a director or officer of any issuer or registrant for the period remaining under the same prohibition ordered by the FMAT. I therefore order the sanctions requested by the Commission, as follows:

a. pursuant to paragraph 2 of s. 127(1) of the Act, trading in any securities or derivatives by or of the respondents shall cease permanently, except for transactions to permit users of the CoinEx Platform to withdraw their assets in the possession or control of the respondents or third parties, and to close their accounts on the CoinEx Platform;

b. pursuant to paragraph 2.1 of s. 127(1) of the Act, the respondents are permanently prohibited from acquiring any securities, except for transactions to permit users of the CoinEx Platform to withdraw their assets in the possession or control of the respondents or third parties, and to close their accounts on the CoinEx Platform;

c. pursuant to paragraph 3 of s. 127(1) of the Act, any exemptions contained in Ontario securities law do not apply to the respondents permanently;

d. pursuant to paragraph 8.5 of s. 127(1) of the Act, the respondents are permanently prohibited from becoming or acting as an adviser or as an investment fund manager, except for those activities strictly necessary to enable users of the CoinEx Platform to withdraw their assets in the possession or control of the respondents or third parties, and to close their accounts on the CoinEx Platform;

e. pursuant to paragraphs 7, 8.1 and 8.3 of subsection 127(1) of the Act, Yang must resign from any position that Yang holds as a director or officer of an issuer or registrant; and

f. pursuant to paragraphs 7, 8.2 and 8.4 of subsection 127(1) of the Act, Yang is prohibited from acting as a director or officer of any issuer or registrant until November 14, 2028.

Dated at Toronto this 6th day of March, 2025

{1} Autorité des marchés financiers v CoinEx Global Limited, 2023 QCTMF 75 (Decision)

{2} RSO 1990, c S.5 (Act)

{3} Decision at paras 9, 11, 13, 15 and 16

{4} Decision at paras 10-11 and 44

{5} Decision at paras 19-23

{6} 1977 CanLII 37 (SCC), [1978] 2 SCR 112, at 127-128

{7} Decision at paras 48-136

{8} Decision at paras 151-184

{9} Decision at paras 195-231

{10} Decision at paras 137-150

{11} Decision at para 321

{12} Decision at para 321

{13} Bill 146, An Act to implement Budget measures and to enact and amend various statutes, 1st Sess, 43rd Leg, Ontario, 2023 (assented to 4 December 2023), SO 2023, c 21, Schedule 10 (Bill 146)

{14} Bill 146; Explanatory note concerning Bill 146 at p ii; "Bill 146, An Act to implement Budget measures and to enact and amend various statutes", Second Reading, Ontario, Legislative Assembly, Official Report of Debates (Hansard), 43-1, No 108 (14 November 2023) at 6023 (Rick Byers); "Bill 146, An Act to implement Budget measures and to enact and amend various statutes", Third Reading, Ontario, Legislative Assembly, Official Report of Debates (Hansard), 43-1, No 116B (28 November 2023) at 6708 (Rick Byers)

{15} Decision at paras 27-30, 257

{16} Act, s 1.1

{17} Aitkens (Re), 2022 ONCM 22 (Aitkens) at para 37, citing Committee for Equal Treatment of Asbestos Minority Shareholders v Ontario (Securities Commission), 2001 SCC 37 at paras 42-43

{18} Aitkens at para 38; JV Raleigh Superior Holdings Inc (Re), 2013 ONSEC 18 (JV Raleigh) at para 16

{19} Black (Re), 2014 ONSEC 16 at paras 24 and 34; Aitkens at para 38; JV Raleigh at para 16

{20} Cook (Re), 2018 ONSEC 6 at para 9; Hable (Re), 2018 ONSEC 11 at para 8, citing Biller (Re) at paras 32-35

{21} Decision at para 271

{22} Decision at para 11

{23} JV Raleigh at para 16; Rustulka (Re), 2023 ONCMT 37 at para 20

{24} Decision at paras 242-259

{25} Decision at paras 260-263

{26} Decision at para 267

{27} Decision at paras 264-266

{28} Decision at paras 265-268

{29} Decision at paras 268, 270

{30} Decision at paras 269-270

{31} Decision at para 272

{32} Decision at paras 276-282, referring to Mek Global Limited (Re), 2022 ONCMT 15 at paras 5, 133 and Polo Digital Assets, Ltd (Re), 2022 ONCMT 32 at paras 6, 151