In this week’s edition of the GME3 we’re taking a look at the scandal surrounding the, now defunct, Canadian crypto-trading platform ezBtc, a very exciting update for our friends at The Parleh and Gaming News Canada, and a new development in the ongoing lawsuit over copyright violations in the training of the generative AI software Stable Diffusion. Read on for the full stories!
Gambling
Cold Storage or Hot Mess?
ezBtc, a (now dissolved) BC-based cryptocurrency trading platform, has been found to have defrauded its customers to the tune of $13 million, according to the BC Securities Commission (BCSC).
Founded by a then-BC resident named David Smillie, ezBtc allowed customers to purchase and sell a variety of cryptocurrencies, including Bitcoin and Ethereum. Customers were promised that their crypto assets would be held in “cold storage” – meaning that they would be secured offline, insulating them from the threat of unauthorized access or hacking.
Instead, ezBtc did almost exactly the opposite. The BCSC found that around one-third of all crypto assets acquitted from or deposited with ezBtc between 2016 and 2019 were diverted, either to gambling websites or directly to Smillie’s personal accounts. The panel also concluded that customers were unable to recover all of the lost assets, meaning that the actions of ezBtc led to actual losses for consumers.
Of the 2,300 BTC and over 600 ETH that were supposed to be held in cold storage, it was determined that 935.46 bitcoins and 159 ethers were “quickly transferred” to either Smillie’s personal accounts or two gambling websites upon deposit. The BCSC panel even found one instance where “a customer deposited a certain amount of bitcoin on ezBtc and just 14 minutes later, ezBtc transferred that exact same amount of bitcoin to one of the gambling sites.”
The panel found Smillie responsible for his company’s actions, arguing that he likely directed the transfers personally. “Not only was Smillie aware that ezBtc did not keep custody of all of its customers’ assets, but he should have been aware that diverting customer assets could result in serious financial consequences for those customers,” the panel continued.
The BCSC is still determining the consequences of these actions, but a financial penalty and bans on market participation seem likely. The BCSC’s findings highlight the severe breach of trust and legal violations committed by ezBtc and its founder, David Smillie. This case underscores the importance of regulatory oversight and consumer vigilance in the rapidly evolving cryptocurrency landscape.
Media
The Parleh Hits
Lazarus Agency Limited, a Canadian media company that specializes in creating content across various platforms within the sports and gaming space, has released a letter of intent to acquire Parleh Media Group.
Parleh is a digital media company that creates original content centering around the sports, entertainment and iGaming industries. Their brands include Homestand Sports, Parleh, and (our personal favourite) Gaming News Canada.
Lazarus has raised $5 million to purchase 100% of Parleh, as well as establish a multi-year plan to further fuel growth for the brand. The purchase will include Parleh’s many partnerships with gaming operators, including BetMGM, FanDuel, Bet99, Betano, NorthStar Bets, and more.
“It was perfect timing for our company to go down this path,” said Mark Silver, Founder of Parleh Media Group. “As we quickly approach the upcoming NFL, NHL, and NBA seasons, and with the MLB playoffs right around the corner, today’s announcement puts us in the driver’s seat to attack new opportunities with our new and existing partners and create more value through our offerings. Our shared vision and complementary strengths make us a formidable force delivering exceptional and engaging content to our audiences.”
Current content development will continue to operate through the capital raise. All current employees, talent, and management of Parleh will enter into new agreements ahead of closing, as “Lazarus is committed to preserving the unique culture and innovative spirit that have been fostered at Parleh.”
This acquisition marks an exciting new chapter for both Lazarus and Parleh Media. With Lazarus’s investment and vision, Parleh is poised to expand its influence in the sports and gaming media landscape, leveraging its strong industry partnerships and talented team. Congratulations to Lazarus, Parleh, and our friends at Gaming News Canada!
Entertainment
AI Copyright Case Draws Lines
A federal judge in the U.S. has allowed the suit brought forward by artists over the uncompensated and unauthorized use of billions of images downloaded from the internet to train generative AI software to proceed.
U.S. District Judge William Orrick found that Stable Diffusion, an AI tool developed by Stability that can create hyperrealistic images in response to written prompts, may have been “built to a significant extent on copyrighted works” and created with the intent to “facilitate” infringement. Any company that incorporated Stable Diffusion into its products could be implicated in the suit.
This could have a lasting effect on how AI is incorporated into different industries going forward. The possibility of a court ruling that the use of copyrighted materials to train AI systems constitutes copyright infringement is holding many industries back from fully adopting the technology. Additionally, AI-generated works themselves are not eligible for copyright protection.
Claims against the companies for breach of contract and unjust enrichment, plus violations of the Digital Millennium Copyright Act for removal of information identifying intellectual property, were dismissed.
This ruling signals a critical moment in the intersection of AI development and copyright law. As the case progresses, it could set a precedent that shapes the future use of AI in creative industries, compelling companies to reconsider how they train and deploy their AI models. The legal landscape for AI-generated content remains uncertain, and businesses will need to navigate these complexities with caution.
GME Law is Jack Tadman, Zack Pearlstein, Lindsay Anderson, Daniel Trujillo, and Will Sarwer-Foner Androsoff. Jack’s practice has focused exclusively on gaming law since he was an articling student in 2010, acting for the usual players in the gaming and quasi-gaming space. Zack joined Jack in September 2022. In addition to collaborating with Jack, and with a keen interest in privacy law, Zack brings a practice focused on issues unique to social media, influencer marketing, and video gaming. Lindsay is the most recent addition to the team, bringing her experience as a negotiator and contracts attorney, specializing in commercial technology, SaaS services, and data privacy.
At our firm, we are enthusiastic about aiding players in the gaming space, including sports leagues, media companies, advertisers, and more. Our specialized knowledge in these industries allows us to provide tailored solutions to our clients’ unique legal needs. Reach out to us HERE or contact Jack directly at jack@gmelawyers.com if you want to learn more!
Check out some of our previous editions of the GME3 HERE and HERE, and be sure to follow us on LinkedIn to be notified of new posts, keep up to date with industry news, and more!
