Crypto platform ezBtc committed fraud, claims BC securities regulator

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 safely. Customers believed they could buy and sell crypto assets like 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 claims that was all 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 attend its offices on June 27 if the company wants to be heard before a hearing is scheduled. The regulator says ezBtc has committed securities fraud because the agreements with customers are futures contracts, which are considered securities. The allegations have not been proven in court.

As Canadian watchdogs crack down on crypto platforms after several high-profile collapses in the sector last year, BCSC director of enforcement Doug Muir said he’s seen quite a few cases like ezBtc. “At the heart of it, a lot of these cases are just an old-fashioned scam dressed up in a new wardrobe,” Mr. Muir said in an interview.

EzBtc operated under a numbered company, 1081627 BC Ltd., registered in 2016 by David Smillie, the company’s sole director. It was first based in Vancouver, then Nanaimo, BC, a port city about 110 kilometers north of Victoria, where an office existed for the company until it abruptly ceased all operations.

In November 2019, customers first woke up to the fact that the website ezBtc.ca no longer works. They could not perform any transactions or withdraw the assets they believed were held on the platform in “cold storage”, meaning securely offline under the apparent surveillance of ezBtc.

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Now new findings from the BCSC have revealed that customers were unable to withdraw their assets because the platform did not retain them in the first place.

Between 2016 and 2019, ezBtc reportedly opened around 13,000 digital wallets for its customers. More than 2,300 bitcoin and nearly 600 ether were deposited in these wallets, the BCSC said. However, the platform’s daily balance never exceeded 11 bitcoin and 20 ether, the regulator added.

Unbeknownst to its customers, ezBtc transferred incoming bitcoin and ether to two cryptogambling sites, the regulator claimed, without naming the sites. The assets so diverted 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, Mr. Smillie’s whereabouts have been unknown, according to chat messages between dozens of former ezBtc clients on Discord, Reddit and other platforms. A phone number associated with ezBtc has been disconnected and email addresses associated with the company’s social media pages are bouncing back as if they never existed.

The price of bitcoin and other cryptocurrencies has rallied this year after a significant drop in 2022. The sector as a whole is still reeling from the implosions of its biggest players, FTX Trading Ltd. and Celsius Network LLC, although a puffy that has become synonymous with crypto seems to be slowly making a comeback.

“We’re seeing so much hype around crypto and anything crypto-related,” Mr. Muir said. “But we know that investors don’t take the time to do their due diligence, or understand how it all works. We encourage everyone to start doing that if they’re going to get involved in crypto.”