- The B.C. Securities Commission is alleging that now-defunct crypto platform ezBtc committed millions in securities fraud
- The previously Nanaimo-based platform and its owner, David Smillie, are accused of diverting approximately $13 million in bitcoin and ether to two online gambling sites without customer authorization
- ezBtc took in 2,300 bitcoin and 600 ether tokens between 2016 and 2019
- Smillie is obliged to appear at his offices in downtown Vancouver on June 27 to set a date for a hearing with the commission
The B.C. Securities Commission is alleging that now-defunct crypto platform ezBtc committed millions in securities fraud.
According to last month’s notice of hearing – which comes after a multi-year probe – the previously Nanaimo-based platform and its owner, David Smillie, are accused of diverting approximately C$13 million in bitcoin and ether to two online gambling sites without customer authorization.
While ezBtc wasn’t registered under B.C.’s Securities Act, the commission views its customer agreements as futures contracts, placing them under the regulator’s jurisdiction.
Though the platform dissolved in October 2022, customers onboarded 2,300 bitcoin and 600 ether tokens into ezBtc-hosted wallets between 2016 and 2019.
Customers were allegedly assured that their assets were secured in cold storage, though the platform never held a sufficient amount to cover the full balance.
ezBtc and Smillie are facing numerous lawsuits in B.C. going back several years.
“In this case, like in all of our cases, we need time to investigate, so we need to be able to gather evidence that we are satisfied,” stated Doug Muir, the B.C. Securities Commission’s Director of Enforcement. “So, that takes time to gather. Our investigations are often time-consuming and complex and this one is an example of that.”
ezBtc and Smillie could face monetary penalties or potential banishment from public markets, while likely avoiding jail time, given insufficient evidence to date for criminal charges. This may change if victims come forth or the securities commission discovers new information.
Smillie is mandated to appear at his offices in downtown Vancouver on June 27 to set a date for a hearing into the securities commission’s allegations.
An emerging industry still reminiscent of the Wild West
The potential ezBtc fraud case is the latest in a long line of questionable behavior from crypto firms skirting financial regulations and best practices at the expense of everyday investors.
These include global crypto exchange, FTX, headed by Sam Bankman-Fried, who, together with certain associates, are accused of fraud, money laundering, and campaign finance violations, among other charges, involving billions in customer funds.
There is also Quadriga, a B.C.-based exchange, whose users were left out of approximately C$250 million after founder Gerald Cotten died in India in 2018, leaving no trace of the passcodes allowing access to customer assets. Cotton was later shown to have falsely boosted Quadriga’s trading volume and moved considerable amounts of customer assets into his personal accounts.
As regulation tightens around the crypto industry, albeit at a glacial pace, potential investors would be best served by thorough due diligence before making an allocation into a crypto-related company or opening an account to procure cryptocurrencies themselves. The assets’ very short histories, the majority of which span less than five years, and their encompassing protocols’ lack of financial disclosures, merit this cautious, detail-oriented approach, much in the same way an investor might consider a private and/or venture opportunity for their portfolio.
If our recent coverage of the sector is any indication, companies are creating an abundance of tangible value, despite bad actors’ inability to resist exploiting the evolving regulatory environment for potential gain. And with crypto having grown into a C$1.59 trillion market to date, according to Coin Market Cap, digital assets and blockchain technology will likely be around for the long term. That said, ongoing consolidations amid the normal creation and destruction cycle of any nascent industry place crypto’s final form up in the air.
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