A B.C. Securities Commission panel has issued an $18.4-million penalty against a person who used his Nanaimo-based cryptocurrency trading platform to defraud investors.
David Smillie and his numbered company 1081627 B.C. Ltd. — operating as ezBtc — were ordered by the commission to repay $10.4 million of ill-gotten gains and an $8-million administrative fine.
Smillie was found to have taken upwards of $13 million worth of assets from his clients to use for personal expenses or to gamble online.
ezBtc was incorporated in 2016.
According to the commission panel, Smillie first solicited people to deposit their bitcoin and ether cryptocurrency in his accounts (or crypto “wallets”), via the ezBtc website, in order to further trade the assets.
Smillie offered what he described as a “unique savings program that allows customers to safely earn a 9% commission annually with daily payments,” although ezBtc charged fees for deposits, withdrawals and trades, according to the panel’s liability findings.
Between 2016 and 2019, customers deposited over 2,300 bitcoins and over 600 ethers into their ezBtc addresses on the platform.
An investigation order was issued in 2019, following complaints to the commission.
Four ezBtc customers who had been defrauded testified at a commission hearing in April.
A customer identified as “JJ” asked for a $73,000 withdrawal but was initially denied, in April 2017.
When JJ tried to transfer his remaining bitcoin, Smillie told him that the ezBtc’s website had been hacked and that approximately 484 of JJ’s bitcoin had been stolen.
Smillie eventually wrote JJ a cheque for $73,000 in person, in 91原创, in May 2021. However, JJ never recovered the 484 bitcoins.
Smilie “made excuses about non-payments and threatened customers who complained publicly,” the panel stated.
Smillie ended up depositing much of the cryptocurrency into his personal accounts and online gambling sites. The daily balance of ezBtc’s bitcoin and ethereum wallets never exceeded 11 bitcoins and 20 ethers, respectively, the commission found.
Smillie and ezBtc “fraudulently diverted their customers’ crypto assets for their own purposes,” the panel concluded.
“Their deceit was blatant and repeated,” the panel said, adding that “Smillie blatantly and repeatedly lied to customers as he authorized, permitted or acquiesced in the transfers of bitcoin and ether to his personal accounts and online gambling sites.
“It is obvious that Smillie ought to have known that transferring customers’ assets to his personal accounts and to online gambling sites, instead of keeping them at ezBtc in cold storage, could result in the loss of those assets and put the customers’ pecuniary interest at risk.”
The panel issued its penalty based on the value of the unrecovered cryptocurrency in July 2019.
The commission calculated 935 bitcoins and 159 ethers were then worth about $13 million although by last April it was worth about $94 million. (Since November, bitcoin has risen in value about 30 per cent compared to April.)
Smillie did not attend the hearings in person or by videoconference, but he was represented by legal counsel Cody Reedman.
“We have no evidence of Smillie’s personal circumstances or his ability to pay,” and Reedman’s statement at the time of the hearing in April that Smillie was “impecunious” was not supported by any evidence, the panel stated.
In addition to the fines, the panel permanently banned Smillie from participating in B.C.’s investment market, except as an investor through a registered adviser. ezBtc is permanently prohibited from trading its shares or engaging in any promotional activity, the commission said.
The findings against Smillie are administrative and not civil nor criminal.
The commission has the ability to recommend criminal charges to the B.C. Prosecution Service. It may also forward a file to the police.
Glacier Media asked if it had done so.
“Section 11 of the B.C. Securities Act requires us to keep all information confidential unless our public duty requires us to disclose information like during public enforcement actions or legal proceedings. As a result, we are unable to confirm or deny whether we have forwarded this matter to IMET [Integrated Market Enforcement Team] or recommended criminal charges,” spokesperson Elise Palmer said.
