Canadian Cryptocurrency Exchange Mismanages User Funds in Bitcoin and Ethereum, Leading to a $9.5 Million Loss

The trading platform for digital currencies in Canada, ezBtc, along with its creator David Smillie, have been convicted of diverting nearly 13 million Canadian dollars (about $9.5 million USD) which belonged to their clients and was meant for cryptocurrency investments. This misallocated sum underpinned personal indulgences, including gambling pursuits.

ezBtc’s Breach of User Confidence

ezBtc was in operation from 2016 to 2019, gathering significant digital assets from clients, counting over 2,300 Bitcoin (BTC) and upwards of 600 Ether (ETH). The company once assured its users that their holdings were safely tucked away in cold storage. In September 2019, the service went dark and was formally dissolved by 2022.

Startling revelations came to light as the British Columbia Securities Commission unveiled nefarious withdrawals from user accounts by the company, amounting to almost one-third of client assets. A staggering total of 935.46 Bitcoins and 159 Ethers were discovered to have been diverted to suffice personal luxuries and wagering on gambling websites such as CloudBet and FortuneJack—a stark violation of trust indeed.

The panel illuminated that these withdrawals were executed sometimes directly from ezBtc, while other transactions passed through Smillie’s own trading account routes. “Transfers to the gambling platforms were carried out at times straight from ezBtc, and at other times indirectly via Smillie’s own exchange accounts before reaching the gambling platforms,” noted the commission.

Establishing the Chronology

The “fraudulence” by Smillie and ezBtc resulted in “actual detriment” with patrons unable to reclaim their assets, the panel further mentioned. The court has set a date of September 24 to deliberate on punitive measures, which might encompass monetary penalties or prohibitions within the trading sphere.

Imposed sanctions timeline for ezBtc’s founder David Smillie. Provided by: The British Columbia Securities Commission

Notwithstanding the anticipation, cryptocurrency adoption in Canada has plateaued for over two years, with a mere 3% of Canadians leveraging Bitcoin and the likes for day-to-day dealings—a country still predominantly fond of cash and cards. The lack of widespread digital currency usage attributes chiefly to the populace’s reluctance to forsake traditional wallets for a completely digitalized approach.

Graph denoting Canada’s adoption rate for cashless and cardless payment options. Sourced from: Bank of Canada

The ezBtc debacle could further quench Canada’s fervor for digital coins. Yet, it accentuates the critical need for robust regulations and protective measures to shield investors and underpin confidence within the nascent finance industry.