Owner of Crypto Exchange Used Client Money for Gambling, Alleges British Columbia’s Securities Regulator

British Columbia’s Securities Commission (BCSC) has revealed that a now-defunct crypto exchange was found to have defrauded clients of around CA$13 million for the purpose of gambling. The hearing was held on Monday.

The company, ezBtc, operated between 2016 and 2022, and the fraud is alleged to have occurred in its first three years of operation. David Smillie, who owned and operated the platform, had convinced the exchange’s users that their assets would be stored in cold storage, i.e., offline.

While a portion of the money (2,300 bitcoins and 600+ ethers) was indeed kept offline as advertised, Smillie has been accused of having transferred 935.46 bitcoins and 159 ethers to two gambling websites as well as his personal financial accounts. These findings were made by a forensic data analytics firm that was hired to assist with the case. At one point, ezBtc transferred money equal to the exact amount a client had deposited not even 15 minutes prior, and sent the money to one of Smillie’s gambling accounts.

According to the BCSC panel that oversaw the investigation, Smillie was the one responsible for ezBtc’s operations, and he is presumed to have conducted the illicit transactions. “By authorizing, permitting or acquiescing in ezBtc’s misconduct, Smillie committed the same misconduct as the platform,” concluded the panel. An emphasis was also placed on the clients who suffered financial consequences as a result of this theft.

The BCSC panel has not yet decided on how to sanction Smillie, but it was stated he could face “monetary sanctions and bans from market participation.” No mention was made of whether Smillie would be sentenced to prison time.

Gambling-Related Fraud in 2024

Given that Smillie’s illegal actions involve CA$13 million (a little under $9.5 million) in stolen funds, this case is one of the more prominent instances of gambling-related fraud. Another example of an even greater scale is the situation of Ippei Mizuhara, the former interpreter of Los Angeles Dodgers star Shohei Ohtani, who this summer pled guilty to defrauding the player of over $16 million for the purpose of wagering on sports. He will be sentenced in October 2024, with the maximum potential punishment being 33 years in federal prison. However, as reported by the Washington Post, the prosecution will likely recommend that Mizuhara spend between seven to nine years in prison instead due to his plea deal.

It was eventually revealed that the bookmaker who accepted Mizuhara’s bets was named Mathew Bowyer, and on August 9th, Bowyer pled guilty to money laundering and operating an illicit gambling business.

Across the Atlantic, January 2024 saw Andy May speak with the BBC regarding how, years prior, he stole £1.3 million from his employer because he was struggling with gambling addiction. He began stealing in 2015, was caught in 2019, and was sentenced in 2021. After spending several years in prison, he was released and now works to raise awareness on addiction and what resources UK gamblers can access if they need help.