Recently, a panel set by the British Columbia Securities Commission (BCSC) found crypto exchange ezBtc responsible of 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 “actual loss” to investors.
Crypto Savings Program Turns Out Scam
The BCSC revealed that ezBtc and its founder, David Smillie, had perpetrated a “fraudulent scheme related to securities” by deceiving customers about the crypto trading platform’s services. The panel found that Smillie diverted approximately CAD13 million, worth around $9.5 million, in customer assets “for their own purposes.”
EzBtc started operating in 2016 and presented itself as a crypto trading platform that offered a “unique savings program that allows customers to safely earn a 9% commission annually with daily payments.”
The exchange, which went offline in September 2019 and was later dissolved in 2022, claimed to store “over 99% of Bitcoin and Altcoins in cold storage.” According to the court documents, customers deposited 2,300 BTC and over 600 ETH into ezBtc between 2016 and 2019, now 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 in the exchange’s corporate registry and remained in that position until it was dissolved two years ago. Additionally, he was ezBtc’s authorized signatory at two financial institutions.
Per the document, the CEO and founder directly interacted with customers through social media, text messages, phone calls, and emails. Customers and staff members referred to him as “the owner.”
Smillie’s name featured prominently in the Testifying Customers’ dealings with ezBtc. Some complainants to the commission also mentioned Smillie.
Seemingly, the payment and withdrawal process were done manually and customers had to wait 7-10 days for standard withdrawals. The testifying customers revealed they had various degrees of success when trying to withdraw their crypto or cash, but eventually, all could not withdraw the assets held into 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 didn’t receive the payment. Later, the customer successfully withdrew 25 BTC to a different exchange, which put him in contact with Smillie.
However, when the user tried to withdraw his remaining assets, the founder alleged that the website had been hacked and his 484 BTC had been stolen. During the hearings, 3 other users shared similar experiences with the crypto exchange and Smillie.
Customers’ Funds Used For Gambling
The BCSC hired forensic data analytics firm Integra to conduct a Blockchain analysis and determine the whereabouts of users’ funds. The firm traced the BTC and ETH sent by users and found that “ezBtc did not retain custody of customers’ assets in its Bitcoin and Ethereum digital addresses.”
Destination of users’ assets. Source: BCSC
Per the analysis, part of the crypto assets deposited to the exchange were directly transferred to online gambling sites and Smillie’s accounts on different 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 discovered 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 “perpetrated a fraud relating to securities” and diverted “935.46 customer Bitcoin and 159 Ether for their own purposes.” As a result, ezBtc and its founder had contravened section 57(b) of the Securities Act. Sanctions are expected to be submitted and imposed next month.
Bitcoin (BTC) is trading at $59,190 in the weekly chart. Source: BTCUSDT on TradingView