A B.C. Securities Commission investigation has claimed that a crypto trading platform misappropriated one third of its clients' assets.

The B.C. Securities Commission (BCSC), the independent provincial government agency responsible for overseeing investment markets that benefit the public, has released details of an investigation into a B.C.-based crypto trading platform. A BCSC panel has alleged that ezBtc, a platform incorporated by former B.C. resident David Smillie, misappropriated approximately $13 million of customer assets for gambling purposes.

The panel accused the crypto trading platform of committing fraud by deceiving its customers. Furthermore, the Securities Commission panel concluded that these alleged fraudulent actions led to “actual loss,” with “customers unable to recover all of their assets.”

The panel’s investigation claimed that ezBtc diverted assets deposited by customers between 2016 and 2019. It alleged that approximately one third of all crypto assets deposited by customers, amounting to $13 million, were transferred to Smillie’s personal accounts on other crypto trading platforms, as well as to two gambling websites. The Securities Commission did not disclose the exact amount of money used for gambling activities, nor did it reveal the names of the gambling websites involved.

During a recent hearing, Smillie did not attend in person but was represented by a lawyer. The company incorporated by Smillie was dissolved in 2022. The next step for the BCSC panel will be to consider options for penalties or sanctions, which could include monetary fines as well as bans from investment markets.

Forensics Firm Helps Uncover Misuse of Customers’ Assets

When ezBtc was operational, customers were assured that the assets they invested would be held in “cold storage.” This is a widely used method for securing cryptocurrency by storing the assets on offline devices. The technique is generally considered more secure, as it prevents cyberattacks by blocking unauthorised access.

ezBtc was responsible for more than 600 ethers and 2,300 bitcoins. Investors were informed that these assets would be kept in “cold storage.” However, the BCSC enlisted the services of a forensic data analytics expert to determine what had happened to a portion of the investments.

As explained by the panel: “The analytics firm determined that 935.46 bitcoins and 159 ethers were ‘quickly transferred’ to either Smillie’s personal accounts or two gambling websites.” The investigation also found that in one instance, a customer deposited Bitcoin on ezBtc, and within 30 minutes, the same amount was transferred to an online gambling website.

Ultimately, the BCSC panel’s investigation concluded that “Smillie directed the affairs of ezBtc and likely directed the transfers of customer assets.” They further alleged that he was aware that ezBtc was diverting customer assets. The panel asserted that Smillie’s authorisation and actions, which enabled the platform to engage in such misconduct, make him and the platform liable.