A crypto firm co-founded by YouTuber Logan Paul that touted tokens backed by rare Pokémon cards and other assets actually defrauded investors, the Ontario Securities Commission (OSC) is alleging.

The regulator filed enforcement proceedings against Toronto-based Liquid MarketPlace (LMP) and its principals, alleging they violated securities laws by illegally distributing securities, engaging in unregistered trading and operating an unregistered exchange in a “multi-layered fraud in the cryptoasset sector.”

Paul was not named in the allegations, and none of the allegations have been proven. A hearing has been scheduled for July 31.

According to regulatory filings, the firm raised more than $10 million from investors to fund the company, but allegedly misappropriated approximately $3 million of that amount by funnelling money through shell companies to the founders of the firm, and by making loans to two of them.

Those loans, which were not repaid, were allegedly used to fund personal spending, including nearly $500,000 that was spent on “high-end fashion, expensive jewellery and watches, personal health and luxury spa services,” the OSC said.

The OSC also alleged the company sold US$2.7 million worth of tokens that amounted to securities or derivatives without complying with prospectus and registration requirements, and traded those tokens without registering as an exchange or dealer.

The regulator also said investors were misled by claims about the tokens. It alleged that investors were deceived because the tokens do not represent legal ownership of the underlying collectibles, these ownership stakes were not recorded on any blockchain, and the underlying assets were not authenticated, appraised or insured.

“These false and misleading representations exposed token purchasers to undisclosed risks, caused investor losses and benefited LMP and its associates,” the OSC said in regulatory filings.

Finally, the regulators alleged the founders of the company misled the OSC during its investigation by “hiding the true nature and total amount of money they had misappropriated for their personal enrichment.”

LMP did not respond to a request for comment by press time.