The Canadian cryptocurrency exchange ezBtc and its founder, David Smillie, face accusations of misusing about 13 million Canadian dollars ($9.5 million) of users’ funds.
The British Columbia Securities Commission (BCSC) panel found that ezBtc redirected customer investments for personal use, including gambling.
Operations and Misconduct
From 2016 to 2019, ezBtc attracted substantial investments, totaling over 2,300 Bitcoin and more than 600 Ether from users. The platform claimed to securely store all funds in cold storage. However, it went offline permanently in September 2019, and by 2022, it was officially dissolved.
The BCSC investigation revealed that Smillie diverted nearly one-third of the funds for gambling and personal expenses. He transferred 935.46 Bitcoin and 159 Ether from ezBtc accounts to his exchange accounts or directly to online gambling sites like CloudBet and FortuneJack.
Impact and Consequences
Smillie’s actions prevented customers from accessing their assets, resulting in significant financial losses. The BCSC panel is expected to announce sanctions by September 24, which could include fines or bans on future market activities. Smillie was represented by his legal counsel at the hearing.
This scandal comes amid slow cryptocurrency adoption in Canada, where only 3% of the population uses digital currencies like Bitcoin daily. Many Canadians still prefer traditional payment methods such as cash and cards.
Canada’s Strict Regulatory Approach
In response to the situation, the Canadian Securities Administrators (CSA) introduced new regulations last year. These rules require crypto firms to protect investors with an “enhanced pre-registration undertaking.”
Under these regulations, firms must ensure proper crypto custody, appoint a chief compliance officer, and eliminate leveraged trading. They also cannot allow users to trade or hold stablecoins.
Some exchanges have left the Canadian market due to these strict rules, but others remain committed to operating within the regulated environment. For example, Coinbase recently hired a former Shopify executive as its new country director for Canada.
Additionally, the Canadian Anti-Fraud Centre (CAFC) has warned about rising crypto scams targeting Canadians. The CAFC, along with the Canadian Investment Regulatory Organization (CIRO), is working to raise awareness about these sophisticated scams, especially those involving prolonged online communication.
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