A B.C. Securities Commission (BCSC) panel has found that a B.C.-based crypto trading platform committed fraud by lying to its customers and diverting about $13 million of their assets to gambling.
The platform, which operated under ezBtc and was incorporated by then-B.C. resident David Smillie, allowed customers to buy and sell various crypto assets. ezBtc and Smillie told customers that their crypto assets would be held in “cold storage,” a more secure method of keeping digital assets offline to protect them from cyber threats and unauthorized access.
Instead, the BCSC panel found that approximately a third of all the crypto assets customers deposited with ezBtc or acquired on the ezBtc platform between 2016 and 2019 were diverted to gambling sites or Smillie’s accounts on other crypto trading platforms.
As the panel notes, “customers could not recover all of their assets. The deceit led to actual loss.”
The BCSC hired a forensic data analytics firm to determine what happened to the 2,300 bitcoins and over 600 ethers that were supposedly kept in ezBtc’s custody in cold storage. The analytics firm determined that 935.46 bitcoins and 159 ethers were “quickly transferred” to either Smillie’s personal accounts or two gambling websites.
In one instance, a customer deposited a certain amount of bitcoin on ezBtc and just 14 minutes later, ezBtc transferred that exact same amount of bitcoin to one of the gambling sites.
The panel found that Smillie directed the affairs of ezBtc and likely directed the transfers of customer assets. Not only was Smillie aware that ezBtc did not keep custody of all of its customers’ assets, but he should have been aware that diverting customer assets could result in serious financial consequences for those customers, the panel said. By authorizing, permitting or acquiescing in ezBtc’s misconduct, Smillie committed the same misconduct as the platform.
Smillie did not attend the hearing, although a lawyer represented him. The company, which was dissolved in 2022, did not participate in the proceedings.
The panel will next consider what sanctions to impose, including monetary sanctions and bans from market participation.