- Canadian crypto exchange ezBtc misappropriated $9.5M
- Most of the funds went towards the founder’s gambling
- Exchange gave false promises to users
ezBtc, a crypto exchange operational between 2016 and 2019, was dissolved in 2022 due to customers being unable to withdraw their assets. The British Columbia Securities Commission (BCSC) revealed that the exchange’s founder, David Smillie, gambled away 13 million Canadian Dollars, or 9.5 million US Dollars, causing its liquidity crisis.
The BCSC mentioned in a court filing, “Customers deposited their assets with ezBtc so they could trade in crypto assets using the ezBtc platform. Their assets were not meant to be used for any other purpose. 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.”
Customers Lost At Least 2,300 BTC and 600 ETH
ezBTC, during its functioning, saw users depositing over 2,300 BTC and 600 ETH with a promise of safeguarding their funds in cold storage. However, Smillie used the assets for personal purposes, transferring them to accounts on other exchanges and routing them to gambling platforms CloudBet and FortuneJack.
Per the agency, he misappropriated about one-third of funds entrusted by users on his platform, which amounted to at least 935.46 BTC and 159 ETH. This led to direct losses for users as they could not withdraw their assets. It called his actions illegal. “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.”
Smillie Acted Alone in Misappropriating User Funds
The Canadian regulator is going after Smillie as the only defendant in this case, as the country’s corporate registry shows him as the incorporator and sole director of ezBtc. The findings suggest that he was the only bad actor involved in the exchange’s operations, controlling user funds completely and acting as its only authorized signatory. He was also the self-represented founder, director, president, and CEO.
Smillie was able to misappropriate user funds due to several factors. Most importantly, these lack regulatory oversight combined with users relinquishing custody over their funds. This reveals a critical issue with centralized crypto exchanges in general, and it’s why many users say, “Not your keys, not your crypto.”
Following the allegations by the British Columbia Securities Commission (BCSC), the case against ezBtc and David Smillie has moved into the phase of considering sanctions. The BCSC is deliberating on the appropriate punitive measures, including fines and a ban on trading.
Smillie did not attend the court hearing and was represented by his lawyer. The BCSC will impose financial sanctions and market restrictions on him on September 24.
Canada Takes Harsh Stance Against Crypto Companies
Last year, Canadian Securities Administrators introduced new rules mandating crypto firms to make commitments to protect investors through “an enhanced pre-registration undertaking.”
Under the CSA’s “pre registration undertakings,” firms have to agree to segregation in crypto custody, and they must have a chief compliance officer on staff.
They must also eliminate leveraged trading and not allow users to trade or hold stablecoins.
However, not all exchanges have exited the country, with some committed to succeeding in a regulated Canadian market.
As reported, Coinbase has appointed a former executive from Shopify as its new country director in Canada as part of its strategy to adjust to the evolving regulatory landscape in the country.
Meanwhile, earlier this year, the Canadian Anti-Fraud Centre (CAFC) warned about a surge in crypto scams targeting Canadian citizens.
In response to this concerning trend, the CAFC, in collaboration with the Canadian Investment Regulatory Organization (CIRO), has issued a warning to raise awareness about these sophisticated scams, particularly those involving prolonged online communication.
