A now-defunct British Columbia-based cryptocurrency platform, ezBtc, faces accusations of multimillion-dollar securities fraud. The BC Securities Commission (BCSC) claims that the operation diverted millions of dollars worth of investors’ deposits to cryptocurrency gambling sites.
BCSC didn’t specify which gambling sites were allegedly involved. However, unregulated gambling has emerged as one of the most popular use cases for cryptocurrency.
Crypto gambling falls into a legal gray area in most countries. Even where real money online gambling is illegal, the law may not be clear on whether cryptocurrency counts as “real money.” Because of the lack of regulation in the cryptocurrency sector, cases of fraud are distressingly common. That’s as true for investment sites as it is for cryptocasinos.
According to a hearing notice issued in April, the BCSC alleged that the ezBtc’s director David Smillie had deceived customers of his crypto trading platform.
BCSC is the Canadian province’s securities watchdog. It alleges Smillie diverted approximately CA $13 million in crypto (US $9.7 million) to two online gambling sites without authorization.
Crypto Platform Allegedly Redirected Funds to Online Gambling Platforms
Between 2016 and 2019, customers deposited 2300 Bitcoin (BTC) and 600 Ethereum (ETH) tokens into wallets on the platform, per the BCSC.
Allegedly, ezBtc told customers they kept digital assets offline in “cold storage.” That is, it claimed it was holding the tokens in digital wallets not connected to the internet, where they would be safe from hacking and theft.
Despite the agreements between ezBtc and its customers amounting to futures contracts, neither Smillie nor ezBtc ever registered under the BC Securities Act. Futures trading falls under BCSC’s oversight.
Additionally, online court records show Smillie and his company faced numerous lawsuits in recent years. According to BCSC, ezBtc dissolved in late 2022.
Doug Muir, BCSC’s director of enforcement, told the Winnipeg Free Press the upcoming hearing follows an in-depth probe:
In this case, like in all of our cases, we need time to investigate, so we need to be able to gather evidence that we are satisfied. Our investigations are often time-consuming and complex, and this one is an example of that.
The matter, added Muir, is administrative rather than criminal. That means Smillie won’t face jail time but could be subject to monetary penalties. Banishment from public markets is also possible if the Commission proves its case.
RCMP Investigation Failed to Find Sufficient Evidence for Criminal Charges
Nanaimo RCMP investigated Smillie and ezBtc in 2019 but didn’t find enough evidence for criminal charges.
Constable Gary O’Brien of the local detachment told WFP:
All I can say is that the matter was investigated and there was insufficient evidence gathered by the primary investigator to pursue criminal matters, so they decided it would probably be best to go from a civil angle.
However, RCMP can reopen the file should victims of the Commission bring new information to light, O’Brien added.
One of those victims is Sergei Goshko, an Ontario-based software engineer. He said he has lost between CA $70,000 and $80,000 (US $52,000 to $60,000) through his dealings with ezBtc.
Goshko told WFP he traded crypto on ezBtc until the platform blocked his access. Eventually, he said, the website “disappeared completely.”
He attempted to sue in 2021, but his legal team could not find Smillie. Bonus has likewise tried and failed to find Smillie for comment on this story.
Goshko may have better luck on June 27. Smillie and his lawyers are due at BCSC offices to find a date for the upcoming hearing into the allegations.
Should Smillie et al. fail to show, BCSC warns, “determinations adverse to the respondents may be made in their absence.”