B.C. crypto fraudster fined $18.4 million for gambling away clients' cash

It came as a surprise to Shawn Murfitt to learn B.C.'s securities regulator has fined David Smillie a whopping $18.4 million for defrauding customers of his now defunct cryptocurrency exchange.

Murfitt — who lives in the Ottawa area — has spent three years and hundreds of dollars trying to recover just a fraction of that amount from Smillie with little to show for his efforts but a moral victory and a default order from a B.C. small claims court for $31,524.39.

"I've now ended up winning the case, but now have no repercussion out of it all," Murfitt told CBC Monday in a brief telephone conversation.

"That's kind of news to me there's a sanction against him. I don't know how all that will work, but then nothing going back to the people who were affected — that's pretty disappointing."

In a decision issued last week, the B.C. Securities Commission (BCSC) ordered Smillie and his company ezBtc to pay the fine — which consists of an order for $10.4 million drawn up against customer losses and an administrative penalty of $8 million.

The decision came after Smillie and his company were found liable for telling customers like Murfitt their cryptocurrency was safe in so-called "cold storage" when much of it was instead funnelled — within minutes in some cases — to gambling websites and personal accounts..

"Smillie blatantly and repeatedly lied to customers as he authorized, permitted or acquiesced in the transfers of bitcoin and ether [another form of cryptocurrency] to his personal accounts and online gambling websites," the penalty decision reads. 

"He made excuses about non payments and threatened customers who complained publicly."

Smillie's ezBtc exchange operated as a "crypto asset exchange platform" offering a "unique savings program ... to safely earn a nine per cent commission annually with daily payments."

According to the BCSC's findings on the case, customers deposited cash or cryptocurrency into ezBtc online accounts in exchange for accounts listing their buy and sell orders together with running tallies of assets they believed the exchange held on their behalf.

Smillie allegedly told customers one of his biggest "things" was "cold storage, cold storage, cold storage" — referring to a means described by the BCSC of holding cryptocurrency away from the internet "to make it safer from hacking."

The exchange took in more than 2,300 bitcoin and more than 600 ether between 2016 and 2019 — when ezBtc went offline amid frantic rumours from investors their investments had disappeared.

The customers who spoke with the BCSC claimed they "had varying degrees of success in withdrawing crypto assets or cash purportedly held in their accounts."

"At some point all encountered difficulties and none were able to withdraw all of the assets that ezBtc purportedly held for them," the BCSC findings stated.