Canadian Crypto Platform Fraudulently Directed Client Funds to Online Casinos

Posted on: May 2, 2023, 03:30h. 

Last updated on: May 2, 2023, 07:03h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

EzBtc, formerly a Canadian cryptocurrency trading platform, allegedly diverted almost $9.6 million (CAD $13 million) in client funds to a pair of internet crypto casinos without their consent.

The allegations were revealed Tuesday by the British Columbia Securities Commission (BCSC), equivalent to the Securities and Exchange Commission (SEC, in that Western Canadian province. From 2016 through 2019, EzBtc clients deposited more than 2,300 Bitcoin and over 600 Ether on the platform. Those are the two largest digital currencies by market value.

“EzBtc transferred incoming Bitcoin and Ether to two online crypto gambling sites without customer authorization. Although the value of the assets fluctuated greatly, as of July 1, 2019, the value of the fraudulently transferred assets was about $13 million,” according to a statement issued by BCSC.

The regulatory agency didn’t identify the crypto casinos in question. Crypto casinos have boomed in popularity in recent years, providing an avenue for increased adoption and use of Bitcoin and other digital currencies.

While some of these gaming outlets may be considered safe, many are licensed outside of Europe and North America and aren’t regulated to the extent of comparable offerings from the likes of BetMGM, Caesars, and DraftKings. Internet casino and online sportsbook operators doing business in the US aren’t allowed to accept crypto as payment.

EzBtc Allegedly Lied to Customers

EzBtc told clients that 99% of their crypto assets on the platform were held in cold storage. That’s a crypto industry term for holding the asset offline, intended to enhance security.

The broker, which is no longer in business, also showed users profit, loss, and holdings and position values online, but that was allegedly a rouse, according to BCSC.

“The platform did not use cold storage, didn’t retain custody of customers’ assets, and most of the holdings that were displayed didn’t exist. From 2016 to 2019, the platform’s daily balance didn’t exceed 11 Bitcoin and 20 Ether,” added the regulator. “As a result, many customers weren’t able to withdraw the crypto assets they believed were held on the platform.”

Today, 11 Bitcoin would be worth approximately $330K while 20 Ether would be valued at close to $40K, not nearly enough for a legitimate broker to adequately service investors.

Futures Contracts Could Incriminate EzBtc

Around the world, including in the US, regulators have struggled with classifying digital currencies. In the EzBtc case, that scenario isn’t at play because the assets in question are futures contracts, which are regulated under Canada’s Securities Act. Thus, EzBtc could be held liable for committing securities fraud.

Regardless of the underlying asset, a futures contract is a legally binding agreement between a buyer and seller under which the buyer will purchase the asset at a predetermined price at a specific date in the future.

“The BCSC’s allegations have not been proven. The Commission requires the parties involved to appear at the BCSC’s offices on June 27, 2023, if they wish to be heard before a hearing is scheduled,” concluded the commission.