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Canadian Crypto Exchange Guilty of Gambling Away $9.5 Million in User Funds, Says Judge
Defunct Canadian cryptocurrency trading platform ezBtc has been found guilty of diverting $9.5 million (CAD $13 million) of customer assets into gambling sites and lying to customers.
The platform operated between 2016 and 2019 and was run and incorporated out of British Columbia by founder David Smillie. The platform stopped operating in September 2019 and the company was later dissolved in 2022.
ezBTC allowed consumers to buy and trade various popular cryptocurrencies, telling customers the assets were being held in cold storage.
A B.C. Securities Commission (BCSC) panel ruled that roughly a third of all the crypto assets that customers deposited with ezBtc or acquired on the ezBtc platform between 2016 and 2019 were diverted to gambling sites or Smillie’s personal accounts on other crypto trading platforms.
The panel noted that “customers were unable to recover all of their assets” and that the “deceit led to actual loss.”
According to a forensic data analytics firm hired by the panel, the company transferred 935.46 Bitcoin and 159 Ethers to Smillie’s accounts or two gambling websites, CloudBet and FortuneJack, while telling customers the assets were being held in cold storage.
These transfers happened very quickly according to the BCSC. In one case, a customer had his Bitcoin sent to a gambling site just 14 minutes after making a deposit.
The commission said it has yet to decide what sanctions to impose, which could include fines or bans from market participation.
The firm’s founder did not attend the hearing and was represented by a lawyer. However, a BCSC executive told The Canadian Press in May 2024 that the case is not being treated as criminal, so Smillie likely won’t face jail time.
A June 2023 survey of 2,000 Canadians conducted by Toronto Metropolitan University found that one-third of digital asset owners in Canada have fallen victim to crypto scams.
In the city of Alberta, Calgary, Canadian police reported the figure lost from crypto scams shot up from 2022 to 2023 for residents, from $14 million to $22.5 million.