The Securities Commission of British Columbia has recently alleged that a cryptocurrency firm, which operates out of the province, committed fraud by falsely claiming to have a partnership with a major technology company.
The firm, named Einstein Exchange, is believed to have promoted a partnership with a large US-based tech firm, which is still anonymous, in a bid to gain the trust of potential investors and build its platform’s credibility. However, the commission discovered that this partnership never existed, and that the firm was making false claims to lure investors.
The Securities Commission stated that it has received a “number of complaints” from investors, who say they have been unable to access their funds or have become victims of other fraudulent activities on the platform.
In its statement, the commission alleges that Einstein Exchange had contravened British Columbia securities laws by operating as an unregistered dealer, by selling securities without a prospectus, and by making misrepresentations.
The allegations have led to the commission taking action to protect investors and asses the financial stability of the firm. This action was taken in spite of the fact that Einstein Exchange has expressed its disagreement with the allegations and has, reportedly, refused to cooperate with the commission.
Since the allegations were made public, the cryptocurrency exchange has been placed into receivership, meaning its financial assets will be overseen by the court and a third-party insolvency firm. In addition, the commission has sold off the firm’s cryptocurrency holdings in a bid to return investor funds.
The commission, which has been vocal in its efforts to regulate the cryptocurrency sector in the province, has previously warned investors of the risks associated with investing in these assets. Investors are often attracted to cryptocurrencies due to their decentralization, and the anonymity they can provide, however, these very elements can be exploited by those seeking to commit fraud.
Speaking about the allegations, the Executive Director of the Securities Commission of British Columbia, Peter Brady, emphasized the need to protect investors from fraudulent activities in the space.
“Protecting investors is our key focus area, and in order to do that effectively, we have to take action where we see wrongdoing manifest. What’s important for investors to remember though is, even with all of our regulatory oversight, cryptocurrencies carry a lot of risks that investors should be aware of before investing.”
This latest incident illustrates the need for increased regulatory oversight in the cryptocurrency sector and highlights the risks that investors are exposed to. However, it is also important to note that not all cryptocurrency platforms operate in the same way, and there are legitimate exchanges that are actively working to build a reputable industry.
The Securities Commission of British Columbia has indicated that it will continue to monitor the cryptocurrency space and will take appropriate action when necessary to protect investors. It is important for potential investors in this space to do their own research and due diligence before investing, to avoid falling victim to fraudulent activities.
The now-defunct cryptocurrency platform based in Nanaimo, on Vancouver Island, Canada, is facing allegations of committing multimillion-dollar securities fraud by diverting client assets to online cryptocurrency gambling sites. ezBTC, which was owned by David Smillie and his numbered company, is accused of lying to customers about its crypto trading platform.
The B.C. Securities Commission, in a notice of hearing issued last month, claims that between 2016 and 2019, the company and Smillie diverted $13 million in bitcoin and ether cryptocurrencies to two gambling sites without clients’ authorization. The regulator contends that although ezBTC was dissolved in October 2022, between 2016 and 2019, clients transferred over 2,300 bitcoin and 600 ether tokens into wallets hosted by the platform. The company allegedly told customers their digital assets were primarily stored offline in so-called “cold storage,” but they did not keep sufficient reserves to cover clients’ assets.
Smillie and ezBtc were never registered under B.C.’s Securities Act. The commission maintains that agreements with clients constitute futures contracts, which are under its jurisdiction.
Online court records indicate that the company and Smillie face numerous lawsuits in British Columbia dating back several years. The B.C. Securities Commission’s director of enforcement, Doug Muir, said the hearing notice came after an extended probe into the firm, which required a long period to investigate and gather evidence.
Muir emphasized that the matter is administrative rather than criminal, indicating that the company and Smillie will not face jail time. The commission, however, seeks to prove its case, which could entail monetary penalties or even public market banishment.
In 2019, the Nanaimo RCMP (Royal Canadian Mounted Police) investigated the company but did not find sufficient evidence to bring criminal charges. The case is administrative rather than criminal, meaning that the firm and Smillie won’t face jail time.
Sergei Goshko, who used the ezBtc platform for cryptocurrency trading, reported that his lawyers were unable to locate Smillie when he filed a lawsuit in B.C. Supreme Court in 2021 through a numbered company, claiming to be out between $70,000 and $80,000. Goshko revealed that he was unaware that the B.C. Securities Commission was taking action against ezBtc and its founder.
Smillie could not be reached for comment. The case continues, and the accused may face stiff sanctions from the regulatory body if the accusations are proven true. The allegations against ezBTC, if proven true, illustrate once again the critical need for the regulation of the cryptocurrency markets.
