The British Columbia Securities Commission (BCSC) has uncovered a significant fraud orchestrated by the cryptocurrency trading platform ezBtc and its founder, David Smillie, defrauding investors of approximately $9.5 million, or 13 million Canadian dollars, in crypto assets.
Fraudulent Practices Uncovered
Through a thorough investigation, the BCSC revealed that ezBtc and Smillie engaged in deceptive practices, misappropriating funds that were meant for customer accounts. The platform, which began accepting customer deposits in December 2016 and ceased operations around September 2019, was found to have misled investors regarding the security and storage of their cryptocurrency investments.
Crypto Funds Diverted for Personal Gain
According to the official press release from the Canadian regulatory agency, customers deposited over 2,300 BTC and more than 600 ETH into their ezBtc accounts during its operation. Despite assurances that these crypto assets were secured in cold storage, the BCSC panel discovered that ezBtc quickly transferred the incoming assets elsewhere. Shockingly, nearly a third of the users’ funds were diverted by Smillie for gambling and personal use.
The panel stated, “The respondents perpetrated a fraud relating to securities by lying to customers about holding their crypto assets in cold storage in ezBtc’s custody, but instead diverting 935.46 customer bitcoin and 159 customer ether for their own purpose.”
Legal Repercussions on the Horizon
The BCSC panel has now directed the executive director and the respondents to make submissions on sanctions. The executive director is expected to deliver submissions by September 3, 2024, with Smillie required to respond by September 17, 2024. This case highlights the ongoing risks and challenges within the cryptocurrency industry, particularly regarding investor protection.
Crypto Crime in Canada: A Growing Concern
This isn’t the first time Canada has faced illicit activities involving cryptocurrencies. Earlier this year, Ontario’s so-called ‘Crypto King,’ Aiden Pleterski, was arrested on fraud and money laundering charges related to an alleged Ponzi scheme. Together with his co-conspirator, Colin Murphy, Pleterski is accused of defrauding unsuspecting victims of around $30 million.
Institutional Demand for Crypto Remains Strong
Despite these challenges, institutional demand for crypto assets in Canada continues to grow. A recent KPMG survey revealed a significant increase in crypto exposure among Canadian institutional investors in 2023 compared to 2021. The study, which surveyed 65 respondents from institutional investors and financial services organizations, found that 39% of institutional investors now have direct or indirect exposure to crypto assets, up from 31% in 2021.
Moreover, half of the financial services firms now offer crypto services, a notable increase from 41% two years ago. One-third of institutional investors have allocated 10% or more of their portfolios to crypto assets, reflecting a growing interest in alternative investments as hedges against inflation and economic uncertainty.
As the case against ezBtc unfolds, it serves as a stark reminder of the importance of vigilance in the rapidly evolving world of cryptocurrency.
