Canadian Crypto Exchange ezBtc Accused of Gambling Away $9.5 Million User Funds

from the articles:

• Canadian crypto exchange ezBtc and its founder David Smillie are accused of defrauding customers of approximately $9.5 million (13 million Canadian dollars).
• The British Columbia Securities Commission (BCSC) found that ezBtc misappropriated customer funds for personal use and gambling.
• About 935.46 Bitcoin and 159 Ether were diverted from customer accounts to Smillie’s personal accounts and gambling websites.
• ezBtc operated between 2016 and 2019, claiming to store user assets in cold storage, but went offline in September 2019.
• The BCSC panel is set to impose sanctions by September 24, which could include monetary penalties and market participation bans.

The British Columbia Securities Commission (BCSC) has found that Canadian crypto trading platform ezBtc and its founder, David Smillie, defrauded customers of approximately $9.5 million (13 million Canadian dollars) worth of cryptocurrency assets.

The BCSC panel, which investigated ezBtc’s operations, discovered that the exchange, which operated between 2016 and 2019, misappropriated nearly one-third of its users’ funds for personal use and gambling activities.

This fraudulent activity has left thousands of investors unable to access their funds, dealing a significant blow to trust in the crypto industry.

According to the BCSC’s findings, ezBtc amassed over 2,300 Bitcoin and 600 Ether from investors during its operational period. The platform had claimed to store all user assets in cold storage, a secure method of keeping digital assets offline to protect them from cyber threats and unauthorized access. However, the reality was far different from these assurances.

The panel discovered that approximately 935.46 Bitcoin and 159 Ether were diverted from customer accounts to Smillie’s personal exchange accounts and online gambling websites such as CloudBet and FortuneJack.

“The transfers to the two gambling websites were sometimes direct from ezBtc, and sometimes indirect from ezBtc to Smillie’s exchange accounts and then to the gambling websites,” the BCSC panel stated.

In one particularly egregious instance, a customer deposited a specific amount of Bitcoin on ezBtc, and just 14 minutes later, the exact same amount was transferred to one of the gambling sites. This rapid transfer of funds illustrates the immediate and deliberate nature of the fraud.

The ezBtc platform went offline permanently in or around September 2019, leaving users unable to withdraw their investments. The company was subsequently dissolved in 2022, further complicating matters for affected investors seeking to recover their lost funds.

The BCSC panel found Smillie directly responsible for ezBtc’s misconduct.

“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 stated.

By authorizing, permitting, or acquiescing to ezBtc’s fraudulent activities, Smillie was deemed to have committed the same misconduct as the platform.

The BCSC panel is set to impose sanctions by September 24, 2024. These sanctions could range from monetary penalties to bans on market participation for both ezBtc and Smillie. While Smillie did not personally attend the hearing, he was represented by a lawyer.

This incident occurs against a backdrop of sluggish crypto adoption in Canada. According to recent data, only 3% of the Canadian population uses Bitcoin or other cryptocurrencies for day-to-day payments, with most Canadians showing a strong preference for cash and card payments.