BCSC Investigation Reveals ezBtc’s Founder Diverted Millions for Personal Use
Canadian cryptocurrency trading platform ezBtc and its founder, David Smillie, are facing serious allegations after being accused of misappropriating approximately 13 million Canadian dollars ($9.5 million) of user funds, according to a panel from the British Columbia Securities Commission (BCSC). The panel’s findings indicate that Smillie diverted a substantial portion of customer investments for personal use, including online gambling.
ezBtc’s Operations and Collapse
ezBtc, which operated between 2016 and 2019, attracted significant investments from users, accumulating over 2,300 Bitcoin and more than 600 Ether. The platform claimed that all user funds were securely stored in cold storage. However, in September 2019, ezBtc abruptly went offline, leaving users unable to access their assets. By 2022, the company had been officially dissolved.
Gambling and Misappropriation of Funds
The BCSC panel’s investigation revealed that nearly one-third of the user funds, amounting to 935.46 Bitcoin and 159 Ether, were funneled from ezBtc to Smillie’s personal exchange accounts or directly to online gambling platforms such as CloudBet and FortuneJack. These transfers were sometimes made directly from ezBtc accounts and, in other instances, were routed through Smillie’s personal accounts before being used for gambling.
In their findings, the panel highlighted the deceitful nature of these actions, noting that they led to significant financial losses for ezBtc’s customers, who were unable to withdraw their assets when the platform went offline.
Anticipated Sanctions and Legal Proceedings
Sanctions against Smillie and ezBtc are expected to be announced by September 24, 2024. Potential penalties could include hefty fines and bans on future participation in the financial markets. Although Smillie did not attend the hearing in person, he was represented by legal counsel during the proceedings.
Canada’s Regulatory Landscape and Crypto Adoption
This scandal occurs amid a challenging period for cryptocurrency adoption in Canada, where only 3% of the population uses digital currencies like Bitcoin for everyday transactions. Despite growing global interest in cryptocurrencies, many Canadians remain cautious, preferring traditional payment methods such as cash, cards, and e-transfers.
In response to concerns about investor protection, Canadian Securities Administrators (CSA) introduced stringent new rules last year. These regulations require crypto firms to adhere to enhanced pre-registration undertakings, including segregation in crypto custody, the appointment of a chief compliance officer, and the elimination of leveraged trading and stablecoin holdings.
While some exchanges have exited the Canadian market due to these regulations, others are working to comply and succeed within the country’s evolving regulatory framework. For example, Coinbase recently appointed a former Shopify executive as its new country director in Canada to navigate these changes.
Additionally, the Canadian Anti-Fraud Centre (CAFC) has issued warnings about a surge in crypto-related scams, in collaboration with the Canadian Investment Regulatory Organization (CIRO). These scams often involve prolonged online communication and are part of a broader trend of sophisticated fraudulent activities targeting Canadian citizens.
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