190 million dollars disappeared after the death of Quadriga's CEO

Quadriga CX does not have a $ 190 million fund after the company announced the sudden death of its young founder in December, according to a creditor protection application filed Thursday.

Quadriga Fintech Solutions Corp., which owns and operates the stock market, faces a "liquidity crisis" and has only $ 375,000 in cash, which equates to over $ 260 million to about 92,000 users, according to a request for relief under the Companies' Creditors Arrangement Act (CCAA) filed in the Supreme Court of Nova Scotia. Quadriga is seeking to appoint Ernst & Young Inc. as a controller.

The company has been unable to locate and access approximately $ 190 million in cryptocurrency, including Bitcoin and Ethereum, since co-founder and sole director Gerald Cotten, who pbaded away on December 9, died on December 9 at the Mr. Cotten's death. According to court documents, he was 24 years old and died of complications related to his health in India. According to a statement posted on Quadriga's website more than a month after his death, Cotten was in the country to open an orphanage.

Quadriga, which was launched in 2013, has kept most of its cryptocurrency in so-called "cold wallets," essentially an off-line storage system that protects funds from hacking and theft. Mr. Cotten was solely responsible for the management of the funds and held the digital security keys to access the portfolios, which the company attempted to recover after his death. "Quadriga was unable to access the cold wallets and / or discovered that they contained only a minimal number of cryptocurrency units," according to a report filed in court by Ernst & Co Young.

Mr. Cotten ran the business himself from his laptop wherever he was, usually in a house he shared with his wife in Nova Scotia. Mr. Cotten's main cell is encrypted, according to an affidavit filed by his widow, Jennifer Robertson. "I do not know the pbadword or the recovery key," she said in the affidavit. "Despite repeated and diligent searches, I could not find them written anywhere."

She also searched their home and other properties in search of business documents, but arrived empty. Robertson hired an outside technical expert to try to "hack Gerry's computers" in addition to an encrypted USB key. The expert had some luck recovering some digital parts and information on Cotten's mobile phones and another computer, but the effort was generally unsuccessful, the affidavit says.

Ernst & Young said in its report that creditor protection was needed to investigate missing parts and determine amounts due to users, noting that "Quadriga's accounting systems do not exist or are not capable of to record and produce even the most basic ones. " accounting summaries. If approved as a controller, the company will also determine if a sale of Quadriga is possible.

Operators of other Canadian cryptocurrency exchanges have said that it is very unusual for only one officer to be the only one to access the funds of the company. That would have made Mr. Cotten – who was well known in the cryptocurrency community and a travel enthusiast – vulnerable to kidnapping or extortion, said Michael Gokturk, CEO of Einstein Exchange, based in Vancouver.

"It's like walking with millions of dollars in cash anytime," said Gokturk.

Mr. Cotten was diligent in other areas of his life. He signed a will on November 27, less than two weeks before his death. He named Ms. Robertson the executor of his estate and described the distribution of his badets, including an aircraft, properties in British Columbia and Nova Scotia, and two chihuahuas named Nitro and Gully, as well as $ 100,000 for care.

Another part of Quadriga's funds is related to third-party payment processors. The company was having trouble obtaining accounts from Canadian banks and last year the Canadian Imperial Bank of Commerce froze about $ 25.7 million held in an account belonging to one of Quadriga's payment processors . The funds were ultimately paid by CIBC to the Ontario Superior Court of Justice, which transferred them to the payment processor, Costodian Inc., in the form of bank drafts. However, neither Costodian nor Quadriga were able to find a bank to accept the bills.

Users have complained in the past year that they have difficulty withdrawing money from the exchange. The Globe has spoken to many of these clients, some of whom have experienced several months of delays trying to withdraw tens of thousands of dollars. None of them wished to be identified for reasons of confidentiality. The balance of the largest individual user account is valued at $ 70 million.

Quadriga continued to accept deposits for weeks after the death of Mr. Cotten. Ms. Robertson, as executor, filed an application in British Columbia. hold an emergency meeting on January 25 to appoint board directors. After the meeting, the board decided to abolish the Quadriga trading platform on January 28th.

Ms. Robertson's affidavit indicates that there have been many comments about Reddit and other forums on Quadriga, including speculation about the actual death of Mr. Cotten. (The CCAA filings contain a declaration of death issued by J.A. Snow Funeral Home in Halifax.) "Threats have also been made against me," she said. "Slanderous comments were made against me and sent via Facebook Messenger to my entire contact list." According to her affidavit, Ms. Robertson personally finances the costs of the CCAA proceedings.

A preliminary hearing is scheduled for February 5th.

Market operators believe that Quadriga's inability to recover funds underscores the need for increased regulatory oversight of their industry. Although most exchanges claim to have security protocols in place to protect client funds, such measures are not prescribed by any Canadian regulator.

"Stock exchanges do not really have to report to a regulator about how they run their businesses," said Cole Diamond, general manager of Coinsquare, a Canadian cryptocurrency company. "That's why you see the problem we're seeing here today with Quadriga."

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