The British Columbia Securities Commission (BCSC) has determined that a cryptocurrency trading platform known as ezBtc defrauded its customers by misrepresenting the safety of their assets and by diverting approximately $13 million to gambling.
The platform – based in the province and founded by a former BC resident – offered services for buying and selling various cryptocurrencies. The company has since dissolved in 2022.
Customers were assured that their digital assets would be kept in "cold storage," a method of securing cryptocurrencies offline to protect against cyber threats and unauthorized access, said the BCSC’s news release.
Between 2016–19, around one-third of the crypto assets entrusted to ezBtc were instead channelled to gambling websites or to the founder’s personal accounts on other crypto trading platforms, the BCSC panel determined. Many customers could not recover their assets and experienced actual losses, the panel noted.
To investigate the missing crypto assets, the BCSC retained a forensic data analytics firm, which discovered that of the 2,300 bitcoins and over 600 ethers that were supposed to be in ezBtc’s cold storage, 935.46 bitcoins and 159 ethers were swiftly transferred to either the founder’s accounts or gambling sites.
In one case, within 14 minutes of a customer’s depositing bitcoins into ezBtc, the exact amount deposited was transferred to a gambling website.
Panel finds fraud
The founder, by permitting or acquiescing to ezBtc’s fraudulent activities, shared responsibility for the platform’s misconduct, the panel concluded.
The founder directed ezBtc’s affairs and likely orchestrated the transfers of customer assets, the panel held. The founder knew that ezBtc was not safeguarding customer assets and that customers could suffer from serious financial harm, the panel said.
The founder did not attend the hearing personally but did so through his lawyer. On the other hand, ezBtc did not participate in the proceedings. The next step is for the BCSC panel to determine the appropriate sanctions, which could include monetary penalties and market participation bans, according to the news release.
The BCSC’s news release noted that investors could consult the list of authorized crypto trading platforms on the Canadian Securities Administrators' website.
The BCSC is an independent provincial government agency tasked with regulating and overseeing the province’s investment market. It aims to maintain a fair, honest, competitive, and dynamic market and to safeguard the public from misconduct.