The Court of Appeal for British Columbia has declined to hear an appeal of a regulatory panel decision, which ordered the operator of a crypto platform to pay over $18 million in sanctions, after finding that they defrauded investors.
Last year, a hearing panel of the B.C. Securities Commission (BCSC) found that David Smillie and his company, 1081627 B.C. Ltd. (which operated as ezBtc), breached securities laws and defrauded investors that deposited crypto to their platform, which was supposed to be safely stored in “cold wallets,” but was actually transferred to online gambling websites without their authorization.
On sanctions, it permanently banned them from the industry, ordered that they jointly pay $10.4 million is disgorgement, and imposed an $8 million penalty on Smillie.
Smillie sought leave to appeal the regulator’s findings, which the court has now dismissed.
According to the appeal court’s decision, Smillie asserted that the regulator made 14 separate errors of law as his proposed grounds of appeal.
“The errors listed are repetitive and disorganized. It is clear that Mr. Smillie takes issue with nearly all of the panel’s findings, including jurisdiction, fraud, procedural fairness and all of the sanctions,” it said.
Ultimately, Smillie abandoned most of the grounds for appeal, and focused on the panel calculating disgorgement at $10.4 million.
That calculation was complicated by the fact that investors’ losses were in highly-volatile crypto assets (almost 900 Bitcoin and 159 ether), which made it difficult for regulators to put a dollar value on losses that occurred over several years.
Ultimately, the panel settled on a specific valuation date that marked the midway point in the long-running fraud, and ruled that, at that moment, the stolen crypto was worth approximately $10.4 million.
In his application for leave to appeal, “Mr. Smillie characterized the panel’s valuation method as arbitrary,” the court said.
However, after conceding that the commission was only required to prove a “reasonable approximation” of the amount obtained by the violation, “Mr. Smillie was unable to point to any reviewable error,” the court found.
“I see no error,’ the court said. “The panel’s approach to valuation was supported by the evidence.”
As a result, it denied leave to appeal, saying, “Mr. Smillie bears the burden of showing his appeal has prima facie merit. While this is a low bar, Mr. Smillie has not met it.”