According to media reports, the British Columbia Securities Commission has accused a cryptocurrency platform and its founder of being involved in a multimillion-dollar securities fraud scheme.
The British Columbia Securities Commission (BC Commission) is a regulatory agency that administers and enforces securities legislation in the Canadian province of British Columbia. The securities regulators from each of the 10 provinces and 3 territories in Canada team up to form the Canadian Securities Administrators (CSA).
Sources reveal that the BC Commission has accused “ezBtc,” a defunct Nanaimo-based cryptocurrency platform, and its founder David Smillie, of perpetrating a multimillion-dollar securities fraud scheme.
According to the securities regulator, Smillie and his crypto firm deceived their customers about the platform and diverted their assets to online gambling sites. As per a Bloomberg report, the accusations were outlined in a notice of hearing issued last month.
Reportedly, the regulator has accused Smillie and ezBtc of moving $13 million worth of users’ assets, including Bitcoin and Ether, to virtual gambling sites without informing or seeking permission from the owners.
While the platform ceased operations in October last year, users moved over 2,300 Bitcoin and 600 Ethereum tokens into the platform’s wallets between 2016 and 2019. When asked about their holdings, the company’s founder allegedly told investors that their assets were often kept offline in cold storage. However, in reality, the firm never had enough assets to cover users’ funds.
Notably, ezBtc has not only been accused of financial crime, but the list of complaints also has more to its name. Sources reveal that the platform was never registered with the regulator, and the agency claims that the company’s agreements with users fell under futures contracts, which are within its jurisdiction.
Additionally, this is not the first time ezBtc has come under the radar of the authorities. Upon further investigation, the B.C. Commission noted that the platform and its founder had faced numerous lawsuits several years ago.
As per the regulator, Gary O’Brien, a constable in the Royal Canadian Mounted Police (RCMP), which facilitated the suits before, said the force’s investigation into ezBtc in 2019 did not find enough evidence to file criminal charges. He said:
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. That’s the only information that I could provide at this point.
Meanwhile, Doug Muir, the securities commission director of enforcement, disclosed that there had been a lengthy probe into the ezBtc, leading to the hearing notice. He said:
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. So, that takes time to gather. Our investigations are often time-consuming and complex and this one is an example of that.
Furthermore, the regulator suggested that this case is not criminal but administrative, saying that the involved parties might face monetary penalties or prohibitions from public markets instead of serving jail terms.
While Canadian citizens are found to have a likeness towards crypto, the regulators have been carrying a cautious approach to ensure investors’ protection. Following the collapse of the FTX exchange in November, the CSA released an advisory for all crypto trading platforms.
The notice mandates all crypto platforms that are seeking registration to sign an undertaking to adhere to investor protections before they come under the jurisdiction of formal regulatory surveillance. Ever since, the regulator has been stringent in its approach which has also been found to be inconvenient for crypto exchanges operating in the country.