A British Columbia Securities Commission (BCSC) panel has imposed an $18.4 million penalty on a defunct cryptocurrency platform and its founder, David Smillie, after uncovering a fraudulent scheme involving misappropriated customer funds.
The platform, ezBtc, operated under the legal name 1081627 B.C. Ltd., was found to have deceived its users by misrepresenting how their cryptocurrency assets would be stored. While customers were assured their assets would be kept securely offline in “cold storage,” the investigation revealed that a significant portion of these assets was used for gambling or transferred to Smillie’s personal accounts on other cryptocurrency exchanges.
A total of 935.46 Bitcoin and 159 Ether were wrongfully obtained through the platform, according to the BCSC panel.
The commissioners ordered Smillie and ezBtc to pay $10.4 million, representing the amount fraudulently obtained minus the funds returned to customers. Additionally, Smillie has been issued an $8 million administrative penalty.
“Mr. Smillie blatantly and repeatedly lied to customers,” the panel wrote in its findings, adding that customers who voiced concerns were threatened with defamation lawsuits.
Tracing the Misappropriated Funds
The BCSC enlisted forensic analytics firm Integra FEC LLC to trace funds from ezBtc’s Bitcoin and Ethereum wallets. The investigation revealed that the money was funneled into Smillie’s accounts on cryptocurrency exchanges such as Poloniex, Binance, and Kraken, as well as online gambling sites including CloudBet and FortuneJack. Tracing efforts ceased once the funds were deposited into gambling platforms.
Despite the financial penalties, the panel expressed doubts about recovering the full amount, stating, “We have no evidence of Smillie’s personal circumstances or his ability to pay.”
Legal and Regulatory Consequences
In addition to financial sanctions, Smillie has been permanently barred from participating in British Columbia’s investment market, except as an investor through a registered adviser. The company, ezBtc, has been permanently prohibited from trading shares or engaging in promotional activities.
The fraudulent platform, incorporated in British Columbia in 2016, ceased operations in 2019 and was officially dissolved in 2022. Smillie did not attend the hearings that culminated in the ruling, and his lawyer, Cody Reedman, has not responded to requests for comment.
This case underscores the risks inherent in the largely unregulated cryptocurrency market and highlights the necessity for stringent oversight to protect investors from fraud.
