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The B.C. Securities Commission alleges a now-defunct cryptocurrency platform based in Nanaimo on Vancouver Island committed a multimillion-dollar securities fraud by diverting customer assets to online cryptocurrency gambling sites.
In a notice of hearing issued last month, the commission says David Smillie and his numbered company, which did business as ezBtc, lied to customers about its crypto asset trading platform.
The commission alleges Smillie and the company diverted about $13 million worth of bitcoin and ether, another cryptocurrency, to two online gambling sites without authorization from customers.
The regulator says the company was dissolved in October 2022, but between 2016 and 2019 customers transferred 2,300 bitcoin and 600 ether tokens into wallets hosted by the platform.
Smillie and the firm allegedly told customers their digital assets were mostly held off-line in so-called "cold storage," but they never truly maintained enough to cover users' assets.
Smillie and ezBtc were never registered under B.C.'s Securities Act, and the commission claims agreements with customers amounted to futures contracts, which fall under the commission's jurisdiction.
Online court records searches show the company and Smillie face a number of lawsuits in British Columbia dating back several years, and the B.C. Securities Commission's director of enforcement Doug Muir said the hearing notice comes after a lengthy probe into the firm.
"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," Muir said Tuesday. "So, that takes time to gather. Our investigations are often time consuming and complex and this one is an example of that."
Muir said 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.
Const. Gary O'Brien with the Nanaimo RCMP said the detachment's investigation into the company in 2019 didn't find enough evidence to lay criminal charges.
"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," O'Brien said Tuesday. "That's the only information that I could provide at this point."
O'Brien said the file could be reopened should any victims or the securities commission reach out to investigators with new information.
Sergei Goshko, an Ontario-based software engineer, said he used the ezBtc platform for cryptocurrency trading until it stopped allowing him access to his funds before its website "disappeared completely."
Goshko filed a lawsuit in B.C. Supreme Court in 2021 through a numbered company, and he said he was out between $70,000 and $80,000.
His lawyers, though, weren't able to find Smillie and he was unaware the B.C. Securities Commission was taking action against ezBtc and its founder.
"I guess it's a good thing, so maybe there'll be some progress," Goshko said Tuesday. "Maybe they will finally find him."
Smillie could not be reached for comment.
The commission says Smillie and his company must attend its offices in downtown Vancouver on June 27 to fix a date for a hearing into the regulator's allegations.
This report by The Canadian Press was first published May 2, 2023.