Anika Begay
Recently, a committee established by the British Columbia Securities Commission (BCSC) found cryptocurrency exchange ezBtc liable for defrauding users of CAD 13 million in Bitcoin (BTC) and Ether (ETH) between 2016 and 2029. The exchange’s founder misappropriated the funds and caused investors to suffer an “actual loss.”
Cryptocurrency Savings Program Turns Out to Be a Scam
The BCSC found that ezBtc and its founder, David Smillie, had engaged in a “securities-related fraud scheme” by deceiving customers about the cryptocurrency trading platform’s services. The panel found that Smillie diverted approximately CAD13 million, worth approximately $9.5 million, in customer assets “for his own purposes.”
EzBtc began operations in 2016 and presented itself as a cryptocurrency trading platform that offered a “unique savings program that allows customers to securely earn 9% commission per year with daily payouts.”
The exchange, which went offline in September 2019 and was dissolved in 2022, said it held “over 99% of Bitcoin and altcoins in cold storage.” According to court documents, customers deposited 2,300 BTC and over 600 ETH into ezBtc between 2016 and 2019, worth $138 million and $1.62 million, respectively.
ezBtc’s founder alleged statements regarding the crypto assets’ safety. Source: BCSC
Smillie appears as the sole director of ezBtc on the exchange’s corporate register and held that position until the exchange’s dissolution two years ago. He was also the authorized signatory of ezBtc at two financial institutions.
According to the document, the CEO and founder interacted directly with customers via social media, text messages, phone calls and emails. Customers and staff members referred to him as “the owner.”
Smillie’s name has been mentioned prominently in Testifying Customers’ reports with ezBtc. Some complainants to the commission have also mentioned Smillie.
Apparently, the payment and withdrawal process was done manually and customers had to wait 7-10 days for standard withdrawals. Customers who testified revealed that they had varying degrees of success when trying to withdraw their cryptocurrency or cash, but ultimately, not all were able to withdraw their assets held on the exchange.
Smillie was responsible for the “large” transfers, one user testified. He deposited 595 BTC into the exchange in 2017 and sold some for $73,000, but did not receive payment. The customer later successfully withdrew 25 BTC to another exchange, which put him in touch with Smillie.
However, when the user tried to withdraw his remaining assets, the founder claimed that the website had been hacked and his 484 BTC had been stolen. During the hearings, 3 other users shared similar experiences with the cryptocurrency exchange and Smillie.
Customer funds used for gambling
BCSC hired data forensics firm Integra to conduct a Blockchain analysis to determine the location of user funds. The firm tracked BTC and ETH sent by users and found that “ezBtc did not maintain custody of customer assets in its Bitcoin and Ethereum digital addresses.”
Destination of users’ assets. Source: BCSC
According to the analysis, some of the cryptocurrencies deposited on the exchange were transferred directly to online gambling sites and to Smillie’s accounts on several exchanges, including Kraken and Binance.
Similarly, 223 BTC that had been transferred from ezBtc to Smillie’s exchange accounts were later sent to CloudBet and FortuneJack, which “strongly indicates that Smillie used funds from ezBtc to fund his accounts at those gambling sites.”
Integra also found that the platform’s daily BTC and ETH balance never exceeded 11 Bitcoin and 20 Ether.
The panel found that the exchange and Smillie had “committed a securities fraud” and diverted “935.46 customers’ Bitcoin and 159 Ether for their own purposes.” As a result, ezBtc and its founder had violated Section 57(b) of the Securities Act. Penalties are expected to be filed and imposed next month.
Bitcoin (BTC) is trading at $59,190 in the weekly chart. Source: BTCUSDT on TradingView
Featured image from Unsplash.com, chart from TradingView.com
