In one case, BCSC found that a customer’s bitcoin deposit was transferred to a gambling website within 14 minutes.
A British Columbia Securities Commission (BCSC) panel has found that Nanaimo, BC-based cryptocurrency trading platform ezBtc committed fraud by lying to its customers and diverting approximately $13 million of customer assets to gambling and the personal accounts of owner David Smillie. BCSC had first acknowledged that it received complaints about ezBtc in 2019 before officially bringing its allegations forward in May 2023.
The platform, incorporated by Smillie and operational from 2016 to 2019, purported to customers that it was a platform to buy and sell various crypto assets while keeping customer assets in “cold storage.” As opposed to hot storage, cold storage is the practice of keeping digital assets in an offline environment, typically long-term, to protect them from unauthorized access.
The panel said it will now consider what sanctions to impose, which could include monetary sanctions and bans from market participation.
In its findings, BCSC said ezBtc customers deposited more than 2,300 bitcoin and over 600 ether to the platform, approximately one-third of which was diverted to gambling websites or to Smillie’s personal accounts on other crypto trading platforms. In one case, a customer deposited 0.2495 bitcoin, sold it for over $2,500, and requested a withdrawal the next day. Despite multiple assurances from Smillie, the customer never received his money and a tracing revealed that the bitcoin had actually been transferred from ezBtc to a gambling website 14 minutes after the initial deposit.
The panel found that, as the company’s director, Smillie was aware that ezBtc did not keep custody of all of customer assets and should have been aware that diverting customer assets could result in serious financial consequences for those customers. Since he allowed ezBtc’s misconduct, the panel said that Smillie committed the same misconduct as the company.
Smillie did not attend the hearings on the matter, but was represented by a lawyer. The lawyer told the BCSC panel that Smillie was out of the country, unable to afford legal fees, and suffering from an unspecified illness, according to The Investigative Journalism Foundation.
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The panel said it will now consider what sanctions to impose, which could include monetary sanctions and bans from market participation.
The BCSC panel decision signifies the latest Canadian regulator cracking down on malpractice among crypto firms operating in the country.
Earlier this year, the Alberta Securities Commission filed a cease trade order against cryptocurrency trading platform Catalyx and its co-founder in connection with a breach that resulted in crypto losses. In May, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) fined Binance, the world’s largest cryptocurrency exchange, for violating anti-money laundering rules, while the Ontario Securities Commission is now pursuing action against digital asset firm Liquid MarketPlace for allegedly illegally diverting millions in investor funds.
Feature image courtesy Kanchanara via Unsplash.
