Canadian cryptocurrency trading platform ezBtc committed fraud by lying to customers and diverting their money to gambling websites, according to British Columbia’s securities regulator.
For about three years, ezBtc told customers across the country that their personal funds were being stored securely. Clients believed they could buy and sell crypto assets such as bitcoin and ether on the platform. Holdings from thousands of digital wallets were displayed online, much like a bank, easy to deposit and withdraw.
But the British Columbia Securities Commission alleges all of that was a lie. The crypto platform did not retain custody of its customers’ assets and most of the holdings shown by ezBtc never existed, the regulatory agency told The Globe and Mail ahead of a public release of its findings this week.
The BCSC is now requiring ezBtc to appear at its offices on June 27 if the company wishes to be heard before a hearing is scheduled. The regulator says ezBtc has committed securities fraud because its agreements with customers are futures contracts, which are considered securities. The allegations have not been proven in court.
As Canadian watchdogs clamp down on crypto platforms after several high-profile collapses in the sector last year, BCSC enforcement director Doug Muir said he’s seen quite a few cases such as ezBtc. “At the core of it, a lot of these cases are just an old-fashioned fraud dressed up in a new wardrobe,” Mr. Muir said in an interview.
EzBtc operated under a numbered corporation, 1081627 B.C. Ltd., registered in 2016 by David Smillie, the company’s sole director. It was first based in Vancouver then Nanaimo, B.C., a harbour city about 110 kilometres north of Victoria, where an office existed for the company until it abruptly halted all business.
In November, 2019, customers first woke up to the website ezBtc.ca no longer functioning. They could not perform any transactions or withdraw the assets they believed were being held on the platform in “cold storage,” meaning securely offline under the apparent watch of ezBtc.
Now, new findings from the BCSC have revealed that customers could not withdraw their assets because the platform did not keep them in the first place.
Between 2016 and 2019, ezBtc purportedly opened about 13,000 digital wallets for its customers. More than 2,300 bitcoin and nearly 600 ether were deposited in those wallets, the BCSC said. However, the platform’s daily balance never exceeded 11 bitcoin and 20 ether, the regulator added.
Unbeknownst to customers, ezBtc transferred incoming bitcoin and ether to two crypto gambling websites, the regulator alleged, without naming the sites. The assets diverted in this way were worth nearly $13-million, as of mid-2019, the BCSC said.
EzBtc did not respond to repeated requests for comment.
Since at least 2021, the whereabouts of Mr. Smillie have been unknown, according to chat-room messages between dozens of former ezBtc clients on Discord, Reddit and other platforms. A phone number associated with ezBtc has been disconnected and e-mail addresses tied to the company’s social-media pages bounce back as if they never existed.
The price of bitcoin and other cryptocurrencies have rallied this year after a significant plunge in 2022. The sector as a whole is still reeling from the implosions of its biggest players, FTX Trading Ltd. and Celsius Network LLC, though the puffery that has become synonymous with crypto appears to be slowly making a return.
“We’re seeing so much hype around crypto and anything crypto-related,” Mr. Muir said. “But we know that investors don’t spend the time to do their due diligence, or understand how it all works. We urge everyone to start doing that if they’re going to get involved in crypto.”