Provincial securities regulator alleges crypto exchange lied to customers, funnelled assets to gambling
The B.C. Securities Commission is accusing a crypto platform based in the province of perpetrating a massive fraud as it diverted millions in customers’ assets to gambling.
A statement from the regulator says the platform, which operated under the name ezBtc, was set up to let customers buy and sell various digital assets. The platform was operated by 1081627 B.C. Ltd. David Smillie, who was a B.C. resident at the time, incorporated the company and was its sole director.
The BCSC said that from 2016 to 2019, users opened accounts and set up about 13,000 ezBtc wallets, into which they placed bitcoin, Ether, and various other crypto assets. EzBtc told its customers and prospective customers that “over 99 per cent” of their bitcoin and other assets were kept in “cold storage” – in other words, offline.
But contrary to that promise, the platform reportedly transferred incoming bitcoin and Ether from customers to two online crypto gambling sites without getting their prior authorization. As of July 1, 2019, the value of those assets was estimated at $13 million.
“[T]he platform did not use cold storage, didn’t retain custody of customers’ assets, and most of the holdings that were displayed didn’t exist,” the BCSC said.
On any given day over the period from 2016 to 2019, the platform held a balance of 11 bitcoin and 20 Ether at most, according to the BCSC. Consequently, many customers were left unable to pull out the crypto assets they believed were on the platform.
“The agreements between ezBtc and its customers relating to crypto assets were futures contracts, which were securities under the Securities Act,” the regulator said, noting the platform is no longer operating. “The BCSC alleges that ezBtc and Smillie committed securities fraud.”
The allegations have yet to be proven.
