Founder of Canadian Cryptocurrency Exchange Embezzles User Funds
The founder of now-defunct Canadian cryptocurrency exchange ezBtc has been found guilty of embezzling user funds. The exchange reportedly sent users’ funds to gambling sites.
An investigation led by Canada’s provincial regulator, the British Columbia Securities Commission (BCSC), found that ezBtc used customer funds for “its own purposes” between 2016 and 2019.
Misuse of Funds and Gambling Allegations
BCSC claims that the exchange’s founder, David Smillie, also received funds from the exchange, which were later sent to two gambling platforms, CloudBet and FortuneJack. The funds involved amounted to 13 million Canadian dollars, approximately 9.5 million US dollars.
Specifically, the investigation revealed that 935.46 Bitcoin and 159 Ethereum had been transferred from the closed exchange account to Smillie’s “trading account” and sometimes directly to the gambling platform. This represents approximately one-third of the platform’s total user assets.
Bitcoin traffic from ezBtc to Smillie trading accounts corresponds to Bitcoin traffic from these accounts to CloudBet and FortuneJack. As more and more Bitcoins are sent from ezBtc into Smillie’s trading account, more and more Bitcoins are sent from Smillie’s trading account to the gambling website.
The Vancouver-based exchange operated for three years before ceasing operations in 2019 and later disbanding on October 31, 2022. The exchange claims to have 99% of funds stored in its cold storage.
Impact on Customers and Regulatory Response
BCSC’s findings also revealed that multiple customers who had deposited large amounts of Bitcoin (595 BTC in total) were unable to withdraw their funds. Some also promised investment returns of up to 9%, but ultimately failed to materialize as the funds could not be withdrawn.
Several of these customers have confirmed that they contacted Smillie multiple times to recover their locked funds, but were given false assurances. By 2019, Smillie had stopped responding to customer inquiries.
The BCSC concluded that Smillie and ezBtc’s actions “resulted in actual losses” for customers, who were unable to withdraw funds. The document added that Smiley could face monetary sanctions and other restrictions by September.
Another Vancouver cryptocurrency exchange that caused losses for its customers is QuadrigaCX. The exchange collapsed in 2018 due to the sudden death of its co-founder Gerald Cotton, who allegedly took critical information about the exchange’s wallet private keys with him.
Recent investigations revealed that the Einstein cryptocurrency exchange, also based in Vancouver, manipulated customer dashboards and provided false information about transaction processing and asset availability. The BCSC accused the exchange’s head, Michael Ongun Gokturk, of operating the exchange as a Ponzi scheme, despite the platform’s bankruptcy in 2018.
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