Founder of Canadian Cryptocurrency Exchange Guilty of Embezzlement
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.
Using Customer Funds for Gambling
BCSC claims that the exchange’s founder, David Smillie, used customer funds for gambling on platforms like CloudBet and FortuneJack. The funds involved amounted to 13 million Canadian dollars, approximately 9.5 million US dollars. According to the investigation, a significant portion of the platform’s total user assets was involved in these transactions.
Bitcoin traffic from ezBtc to Smillie’s trading accounts was found to correspond to Bitcoin traffic from these accounts to gambling platforms. EzBtc ceased operations in 2019, claiming to have 99% of funds stored in cold storage. However, the investigation revealed discrepancies in the actual daily balances of Bitcoin and Ethereum wallets.
Failure to Return Customer Funds
Multiple customers who had deposited large amounts of Bitcoin were unable to withdraw their funds, leading to significant losses. Some customers were promised high investment returns, but these failed to materialize as the funds remained inaccessible. Despite repeated attempts to contact Smillie for fund recovery, customers were met with false assurances before he stopped responding to inquiries in 2019.
The BCSC, prompted by customer complaints and lawsuits, found that Smillie’s actions resulted in actual losses as customers were unable to access their funds. Sanctions and restrictions may be imposed on Smillie as a result of the investigation.
Canadian Cryptocurrency Exchanges Facing Troubles
ezBtc is not the only Vancouver-based cryptocurrency exchange to cause losses for its customers. QuadrigaCX collapsed in 2018 following the death of co-founder Gerald Cotton, who allegedly took crucial wallet information with him. Authorities are currently pursuing another co-founder, Michael Patryn, in connection with the case.
Similarly, the Einstein cryptocurrency exchange closed in 2019 due to financial difficulties in repaying customers. Investigations revealed false information provided to customers and accusations of operating a Ponzi scheme. The exchange’s head, Michael Ongun Gokturk, faces scrutiny despite the platform’s bankruptcy in 2018.
These cases highlight the importance of transparency and accountability in the cryptocurrency industry to protect users’ funds and prevent fraudulent activities.
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