Crypto firm diverted $13M in assets, securities commission finds

A panel of the British Columbia Securities Commission has found a cryptocurrency trading platform and its owner lied to customers and diverted about $13 million in assets to gambling and personal accounts. 

The commission says the company operating under the name ezBtc and incorporated by then-B.C. resident David Smillie told customers their bitcoins would be held in "cold storage," a more secure method of keeping digital assets offline.

Instead, the panel found about a third of all the crypto assets that customers deposited with the platform between 2016 and 2019 were diverted to gambling sites or to Smillie's personal accounts on other crypto trading platforms.

The commission said in a statement issued Monday that it hired a forensic data analytics firm to determine what happened to the cryptocurrency, and some of it was "quickly transferred" either to Smillie's accounts or two gambling websites. 

It said the panel found Smillie directed the affairs of ezBtc, and by authorizing the company's misconduct, he committed the same misconduct as the platform.

The commission says the company was dissolved in 2022 and didn't take part in the hearing, and while Smillie didn't attend, he was represented by a lawyer.

In May, B.C. Securities Commission's director of enforcement Doug Muir told The Canadian Press the matter is administrative rather than criminal in nature, meaning the firm and Smillie won't face jail time, but may face monetary penalties or even banishment from public markets should the commission succeed in proving its case.

The commission says the panel will next consider what sanctions to impose, which could be monetary or bans from market participation.