Canadian Cryptocurrency Platform Misappropriates $9.5 Million in Bitcoin and Ethereum from Users

The securities regulator of British Columbia, known as the British Columbia Securities Commission (BCSC), has concluded that the cryptocurrency exchange ezBtc and its founder, David Smillie, are culpable of defrauding investors, with losses totaling around CA$13 million, or approximately $9.5 million in digital assets.

The BCSC’s thorough inquiry found that both ezBtc and Smillie were involved in fraudulent transactions and misdirection, leading to the misappropriation of customer funds that were supposed to be deposited into their accounts.

Diversion of Crypto Assets for Private Use

The Canadian regulatory body, through an official news release, states that ezBtc started receiving customer deposits in late 2016 but shuttered by September 2019. Over this timeframe, clients transferred upwards of 2,300 bitcoins (BTC) and over 600 ethers (ETH) into ezBtc accounts.

Contrary to the assurances that the cryptocurrency would be safely kept in cold storage, ezBtc was found to be transferring these assets out of their accounts swiftly. It was revealed by a panel that nearly one-third of the client’s funds were used by Smillie for personal gains and gambling activities. The panel found this blatant deception to be the source of substantial financial damage to ezBtc customers, leaving them without the ability to withdraw their digital currencies.

“The fraud was perpetuated by the defendants, who falsely assured investors that their crypto holdings were securely maintained in ezBtc’s cold storage. Contrarily, 935.46 bitcoins and 159 ethers belonging to customers were repurposed for personal benefit.”

On the matter of imposing sanctions, the panel has requested submission from both the executive director and the accused parties. The executive director must submit their side by September 3, 2024, with Smillie’s response due on September 17, 2024.

The crypto landscape in Canada has not been without its share of wrongdoing. For example, the so-called ‘Crypto King’ of Ontario, Aiden Pleterski, was apprehended in the month of May on allegations of fraudulence and money laundering relating to what appears to be a Ponzi operation. Pleterski, 25, and his associate, 27-year-old Colin Murphy, purportedly swindled around $30 million from their victims.

Nonetheless, institutions in Canada continue to show a sustained interest in the acquisition of crypto assets.

Sustained Interest Among Canadian Institutions

According to a recent report by KPMG, which was the result of a survey involving 65 institutional investors and financial entities, there was a noticeable enhancement in institutional investment in cryptocurrencies in 2023 as compared to 2021. The survey findings indicate that direct or indirect exposure to crypto assets increased to 39% among institutional investors, up from 31% two years earlier.

Moreover, the report highlighted that 50% of financial service providers are now offering crypto-related services, marking growth from 41% in the previous measure. A third of institutional investors are allocating at least 10% of their portfolio to cryptocurrencies, showing a keen interest in these alternative assets amid inflation and economic uncertainties.