Cryptocurrency. Binance Holdings Limited v. Ontario Securities Commission
In Binance Holdings Limited v. Ontario Securities Commission (Div Court, 2023) the Divisional Court considered a JR against a Capital Markets Tribunal (CMT) decision that it lacked jurisdiction to order the revocation of an "(i)nvestigation Order under s. 144(1) of the Securities Act" (which was initiated "under s. 11(1)(a) of the Securities Act, R.S.O. 1990, c. S.5").
These quotes illustrate OSC regulation procedures in the new 'crypto' field:
Brief Background. Binance Holdings Limited v The Ontario Securities Commission
 Binance is a Cayman Islands corporation that operates an online crypto asset trading platform that it describes as the largest in the world. On that platform, users can transfer and store various digital assets. The platform has been accessible in Ontario.
 On March 29, 2021, the OSC issued a press release indicating that crypto asset trading platforms doing business in Ontario were required to bring their operations into compliance with Ontario securities law. Those trading platforms, including Binance, were required to contact the OSC to start compliance discussions. Binance did not do so.
 By letter dated April 20, 2021, OSC Staff notified Binance that they were contemplating enforcement proceedings against Binance. The letter outlined concerns that Binance was trading in and distributing securities without registering with the OSC and without filing a prospectus or obtaining an exemption, and that Binance was carrying on business as a marketplace without authorization, all contrary to the Securities Act.
 Binance began discussions with OSC Staff about regulatory compliance. In June 2021, Binance advised its Ontario users that it could no longer service them and that operations would cease in Ontario as of December 31, 2021. However, on December 29, 2021, Binance communicated to its users that, because of its cooperation with securities regulators, it was permitted to continue operating.
 Binance has since acknowledged that the December communication to Ontario users was incorrect. Binance also mistakenly communicated to users and OSC Staff that restrictions were in place for Ontario accounts, when Ontario users were still able to trade on the Binance platform.
 On January 7, 2022, OSC Staff notified Binance of their intention to bring an application for a cease trade order.
 After further discussions, Binance and its Canadian corporation Binance Canada Capital Markets Inc. entered into the Undertaking and Acknowledgement to the OSC, dated March 16, 2022 (the “Undertaking”). Among other things, Binance acknowledged that it had given Ontario users incorrect information and had permitted Ontario investors to continue to trade after restrictions were supposedly in place to prevent continued trading.
 In the Undertaking, Binance undertook to prevent Ontario users from opening accounts on the Binance platform. Binance undertook to identify existing Ontario accounts and prevent all trading in those accounts except for specific steps to, for example, close existing positions or withdraw funds. Binance undertook to wind down its Ontario business in certain products entirely. Binance further undertook to provide quarterly reports to the OSC and retain an independent third party to review Binance’s implementation of its commitments and report to the OSC.
 The Undertaking included a reservation of rights. Binance expressly acknowledged that the OSC and OSC Staff retained the right to bring enforcement proceedings or seek temporary orders against Binance, with some exceptions. The scope of this reservation of rights is at issue on this application and is discussed below.
 Binance provided quarterly reports to the OSC and retained a third party to fulfill that aspect of the Undertaking. An audit plan for the third party report, acceptable to the OSC, was agreed on. Binance continued to pursue the possibility of doing business in Canada.
 A draft third party report was delivered. However, it diverged from the plan, in part because Binance had refused to provide access to its live database. OSC Staff made inquiries. From the standpoint of OSC Staff, Binance was not very responsive and when responses were received they were incomplete. With respect to the live database, after several months Binance said for the first time that it had concerns about an external party having access to its database.
 The OSC also became aware that another regulator, the United States’ Commodity Futures Trading Commission, had filed a complaint against Binance and others in the U.S. District Court for the Northern District of Illinois (the “CFTC Complaint”).
 The OSC then commenced the investigation into Binance that is challenged in this application for judicial review.
Investigation Order and Summons
 By order dated May 10, 2023, the OSC initiated the investigation under s. 11(1)(a) of the Securities Act (the “Investigation Order”). The Investigation Order provided, among other things, that it appeared to the OSC that Binance may have engaged is conduct contrary to Ontario securities law and/or contrary to the public interest, including the following:
(i) trading in securities without registration or an exemption from the registration requirements; On May 11, 2023, a summons (the “Summons”) was issued, requiring the production of documents and provision of information about fees and revenue earned in Ontario, Ontario accounts that remained open, and the methodology used to provide that information. The scope of the Summons is at issue on this application.
(ii) distribution of securities without either complying with or an exemption from the prospectus requirements;
(iii) making misleading statements to the OSC; and,
(iv) taking steps to circumvent Ontario securities law and compliance controls, including in relation to the Undertaking.
 On May 12, 2023, Binance publicly announced that it would withdraw from operating in Canada.
In Binance Holdings Limited v The Ontario Securities Commission (Div Court, 2023) the Divisional Court considered Capital Market Tribunal proceedings involving a cryptocurrency corporation out of the Cayman Islands. In paras 8-25 the court sets out a background history.
. CryptoStar Corp. v. 611890 Alberta Inc.
In CryptoStar Corp. v. 611890 Alberta Inc. (Div Court, 2023) the Divisional Court provides some insight into cryptocurrency 'mining', here with a contract for electricity and subsequent dealings:
 CryptoStar is a cryptocurrency mining company that generates cryptocurrency using computer hardware that continuously runs complex algorithms. This continuous operation – “mining” – requires substantial amounts of electric power. Pursuant to the agreement between CryptoStar and the respondents (collectively, “Avila”), Avila was to build and commission infrastructure and equipment at sites in rural Alberta where Avila would generate power to supply to CryptoStar. CryptoStar was Avila’s first and only customer for electric power. All of Avila’s funds, lands, and assets are in Alberta.
 On April 17, 2020, following from a letter of intent dated April 3, 2020, CryptoStar and Avila entered into an original version of the Agreement. On April 12, 2021, the parties executed an Amended and Restated Power Supply Agreement.
 In s. 2.1 of the Agreement, Avila agreed to provide CryptoStar with power upon the payment by CryptoStar of USD $1,481,010 (plus tax) per 10 MW of power (an “Upfront Payment”). Each Upfront Payment included: (i) the costs of “prepaid power” for the “first 6 months of supply”, after which CryptoStar was required to pay for power, invoiced monthly in advance; and (ii) the cost of “commissioning the required infrastructure and equipment.” The Upfront Payments did not include the cost of building the containers required to host CryptoStar’s equipment (the “hosting containers”).
 As found by the motion judge, there is no express requirement in the Agreement that Avila segregate or hold the Upfront Payments pending the provision of prepaid power: “[i]n fact, the Agreement is explicitly structured so that Avila can access capital from the Upfront Payments to build infrastructure for power generation facilities.” As the motion judge explained, “[t]his reflects that, as both parties understood, prior to the Agreement Avila had no power generation business or infrastructure of any kind, such that power plants would have to be built in 10 MW increments.”
 Section 2.8 of the Agreement states that, in the event Avila fails to provide power within 120 days pursuant to s. 2.1(d), CryptoStar has the right to demand repayment of the Upfront Payments, “other than expenses actually incurred and paid by Avila for infrastructure and equipment.”
Dealings Between the Parties Under the Agreement
 Owing to CryptoStar’s financial circumstances, Avila agreed to allow CryptoStar an indulgence whereby Avila would supply power in three tranches of power totalling 4 MW, rather than the 10 MW contemplated in s. 2.1 of the Agreement. CryptoStar made the Upfront Payments for these smaller tranches between September 2020 and July 2021.
 CryptoStar then requested an additional 10 MW of power, but could not immediately afford the entire Upfront Payment. Avila agreed that CryptoStar could pay for the 10 MW in two instalments. CryptoStar paid for 5 MW of power, rather than the 10 MW for which it asked and was invoiced.
 In total, CryptoStar paid Avila USD $1,332,819 plus GST for 9 MW of power. For its part, Avila purchased generators, turbines, transformers, breakers and cabling, as well as housing containers. Aviva built a 3.5 MW power plant that was commissioned and operated at the “4-20 site” in Alberta until the site shut down in December 2021. CryptoStar received and consumed at least CAD $216,141 of power from the power plant at the 4-20 site.
Treatment of the Upfront Payments
 CryptoStar transferred all the Upfront Payments it made to Avila’s general bank accounts. Avila’s evidence – which the motion judge described as “essentially unchallenged (subject to the legal argument...)” – was that these funds were then co-mingled with Avila’s pre-existing funds, and that the co-mingled funds were used to pay for all of Avila’s operating expenses, including the expenditures in connection with the power generation business.
 The motion judge found that Avila did not and was not contractually obliged to set aside or hold the Upfront Payments in cash. Avila used the funds to defray the capital costs of building the power plants. The Upfront Payments were not held in a segregated fund. The motion judge accepted the evidence of Avila’s controller that the Upfront Payments were indistinguishable from the other funds with which they were co-mingled “from the moment they were deposited into Avila’s general accounts.” The motion judge found “inasmuch as the Agreement did not place any restrictions on the use of the Upfront Payments, Avila could and did use the funds as it saw fit, and did not track the trajectory and depletion of these payments from the general bank account.”
 The motion judge found that the funds that Avila spent to install and generate power had to be incurred regardless of the source of revenues received. These were booked to the “allowance for expenditures” for the project. CryptoStar was credited for its power consumption in the first six months of supply and was not to be charged per kWH over that period. Therefore, for revenue recognition purposes, Avila accrued the Upfront Payments as a liability in the form of “deferred revenue.”