A British Columbia Securities Commission (BCSC) panel has imposed an $18.4-million penalty on David Smillie and his Nanaimo-based cryptocurrency trading platform, ezBtc, for defrauding investors. The judgment includes a $10.4-million repayment of ill-gotten gains and an $8-million administrative fine.
The panel found that Smillie and his numbered company, 1081627 B.C. Ltd., misused over $13 million in customer assets, diverting funds to personal expenses and online gambling. The platform, incorporated in 2016, promised high returns but operated deceitfully, leaving customers significantly out of pocket.
Promises of Safety and High Returns
Through ezBtc, Smillie solicited cryptocurrency deposits, promising customers a “unique savings program” with an annual 9% commission. While fees were charged for deposits, withdrawals, and trades, customers were led to believe their assets were safely held in cold storage—digital wallets disconnected from the internet to protect against theft.
Between 2016 and 2019, customers entrusted over 2,300 bitcoins and 600 ethers to the platform. However, an investigation initiated in 2019 following customer complaints revealed a different reality.
Fraudulent Practices Exposed
The BCSC panel concluded that Smillie had fraudulently diverted customer assets for personal use, depositing significant sums into his accounts and gambling websites. ezBtc’s cryptocurrency wallets held daily balances as low as 11 bitcoins and 20 ethers, far below the total deposited.
The panel highlighted Smillie’s deceit, stating, “Smillie blatantly and repeatedly lied to customers as he authorized, permitted, or acquiesced in the transfers of bitcoin and ether to his personal accounts and online gambling sites.”
One customer, referred to as “JJ,” testified about being denied a $73,000 withdrawal in 2017. Smillie claimed the platform had been hacked, resulting in the theft of 484 bitcoins. Though Smillie issued JJ a cheque for $73,000 in 2021, the 484 bitcoins were never recovered.
Penalties Reflect Unrecovered Assets
The $18.4-million penalty was based on the value of unrecovered assets as of July 2019. The panel determined that 935 bitcoins and 159 ethers, then worth $13 million, had been diverted. By April 2024, their value had surged to $94 million.
Smillie, who did not attend the hearings but was represented by lawyer Cody Reedman, was found to have repeatedly threatened customers who publicly voiced their grievances.
The BCSC’s ruling underscores the risks of entrusting assets to platforms lacking transparency and accountability, marking a significant step in protecting cryptocurrency investors from fraudulent schemes.
