B.C. Securities Commission Uncovers $13 Million Fraud by Crypto Trading Platform

A panel from the British Columbia Securities Commission (BCSC) has uncovered a significant case of fraud involving a cryptocurrency trading platform and its owner, resulting in the misappropriation of approximately $13 million.

The platform, operating under the name ezBtc, was established by David Smillie, a former resident of B.C., who misled customers and diverted their assets for personal gain.

Misleading Promises and Misuse of Funds

According to the BCSC, Smillie assured customers that their bitcoins would be securely stored in “cold storage,” a method designed to keep digital assets offline and protected from cyber threats.

However, the panel’s investigation revealed that this promise was far from the truth. Between 2016 and 2019, about one-third of the cryptocurrency deposited by customers was funnelled into gambling websites or transferred to Smillie’s accounts on other trading platforms.

Forensic Analysis and Findings

The commission employed a forensic data analytics firm to trace the missing funds. Their findings were damning, showing that the cryptocurrency was swiftly redirected to Smillie’s accounts or gambling sites, rather than being securely stored as promised.

The BCSC’s panel concluded that Smillie had direct control over ezBtc’s operations and was fully responsible for the platform’s fraudulent activities.

Legal Proceedings and Next Steps

Despite the severity of the accusations, the company ezBtc was dissolved in 2022 and did not participate in the hearing.

While Smillie himself did not attend the proceedings, he was represented by legal counsel. The BCSC panel is now deliberating on appropriate sanctions, which could include significant monetary penalties or lifetime bans from market participation for Smillie.

Implications for the Crypto Industry

This case highlights the risks associated with unregulated cryptocurrency platforms and underscores the need for vigilant regulatory oversight.

The BCSC’s findings serve as a stark warning to both investors and operators within the digital asset space about the potential for fraud and the importance of transparency and trust in the burgeoning cryptocurrency market.