B.C.-based crypto platform committed $13M fraud: securities commission

An advertisement for Bitcoin, one of the cryptocurrencies, is displayed on a building in Hong Kong, on Nov. 18, 2021.(THE CANADIAN PRESS/AP-Kin Cheung)

A B.C.-based crypto trading platform lied to its customers while "diverting" $13 million-worth of their assets to gambling, according the provincial regulator.

A panel of the B.C. Securities Commission found that the now-defunct platform, eZbtc and its director, David Smillie committed fraud between 2016 and 2019.

"Customers were unable to recover all of their assets. The deceit led to actual loss,” the BCSC's decision said.

The platform told investors that their crypto assets would be held in "cold storage," which the BSCS explains is "a more secure method of keeping digital assets offline to protect them from cyber threats and unauthorized access."

The panel's decision quotes several instances in which Smillie told customers their assets would be held in cold storage.

“I’ve taken extra precaution to segregate and cold store your coin,” he said in one instance.

“One of my biggest things has always been cold storage, cold storage, cold storage,” he said in another.

Instead of doing this, a forensic investigation found the crypto was "quickly transferred" into either Smillie's personal accounts or to online gambling platforms CloudBet and Fortune Jack. In total, 935.46 bitcoin and 159 ether were transferred.

"The evidence is clear, and we find that both ezBtc and Smillie represented to customers that their crypto assets will be safely held in cold storage. ezBtc did not do so," the BCSC panel's ruling said.

"Diverting customers’ assets to Smillie’s exchange accounts or gambling sites while representing to customers that their assets were safely held by ezBtc in cold storage was deceitful and a prohibited act."

What customers said

The BCSC began an investigation after customers reported being unable to withdraw their assets. Four of those customers testified before the panel about their experiences.

"None were able to withdraw all of the assets that ezBtc purportedly held for them," the decision says.

In one case, a customer lost 484 bitcoin which at the time of the fraud had a value of $1,700 each and a combined value of $823,000. By the time of the hearing, a bitcoin was valued at $100,000.

"(The customer) testified that losing the bitcoin was very stressful. From the moment they went missing and for months afterwards, he thought about it every day. Later, when the price of bitcoin went up, he found it even more stressful," the panel's decision said.

Another customer deposited 0.2495 bitcoin and sold it for $2,633.18 but was never paid. In that case, the forensic investigation found that the bitcoin was transferred to a gambling site 14 minutes after it was deposited on the platform.

Another customer told the panel that he had to delay a medical procedure due to his financial losses and that "he was the center of discussions or jokes among family and friends and had his intelligence questioned because he was defrauded."

Smillie, who previously worked as a video editor for CTV News between 2001 and 2010, did not participate in the hearing but was represented by a lawyer. Through counsel he argued, in part, that the forensic investigation was incomplete and that should not be held personally responsible. The panel rejected his arguments and found he "directed the affairs of ezBtc and likely directed the transfers of customer assets."