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Christine Duhaime, BA, JD, CAMS, practices law at Duhaime Law in Vancouver.
QuadrigaCX, most reports on the early operation of the digital exchange system, is based more on fiction than facts. How can I know? I know this because in 2015, I was QuadrigaCX's legal advisor, hired to help his Canadian securities council draft a statutory prospectus.
But here's the thing, and I'm not embarrbaded to say it, our business was shut down after six months. We were fired because QuadrigaCX ran a difficult overnight management, which opened the company on the path to anarchy. When I speak of anarchy, I think it only and only in the regulatory sense.
Before I begin, let me dispel some myths about QuadrigaCX.
Our company has agreed to represent QuadrigaCX as it was subject to oversight by several regulatory agencies in Canada. He was registered with FINTRAC, Canada's FinCEN, and was subject to compliance reviews, which were similar to the IRS's reviews of US-MSB trade; it was a reporting issuer in two Canadian provinces and subject to the supervision of two securities regulators, which is tantamount to being subject to the oversight of two SEC activities; and she registered in Quebec for anti-money laundering purposes with the provincial securities regulator.
In addition, QuadrigaCX had storage insurance on the digital currencies of its customers. That was in 2015, and if you were in the space at that time, you know how difficult it was to take out cold storage insurance for a digital currency system.
I think this is perhaps the first exchange in the world to take out cold storage insurance.
At the time, QuadrigaCX had four different law firms advising on different issues, two national law firms and two specialized firms, including ourselves. There was a chartered accountant who prepared the financial statements of all his trades in bitcoins, his finances and his badets. And there was also an independent auditor of an accounting firm and audited financial statements.
In 2015, it was virtually unknown for a digital exchange bureau to have an auditor and prepare audited financial statements that it made available to the public. It was more transparent than many exchanges today.
First days
At the time, QuadrigaCX wanted to launch a blockchain research and development laboratory and, although it was just launched, it created a project: an operational refugee payment application to fight against the problem. financial inclusion, which would allow the United Nations and refugees to process bitcoin payments in areas where banking was inaccessible.
Personally, personally, personally and personally, I decided to help QuadrigaCX with this technology because financial inclusion was important to me, as was most digital currency trading. . I believe that QuadrigaCX was the first exchange center in the world to launch a research and development lab, and probably the first to develop a payment technology allowing the acceptance of bitcoin for the purpose of inclusion financial.
At the time, QuadrigaCX's vision was to be the world's first publicly traded and regulated exchange and to dominate the market with superior self-managed technology. They have moved away from the previous goal, but having had 350,000 customers with four employees and a platform built in 2014, they have certainly succeeded with the latter, becoming by far Canada's largest stock exchange.
No story of QuadrigaCX is complete without understanding one more fact: six months before we were successful, we adopted a court-approved plan of arrangement and became three companies. As a result, we inherited a large number of new shareholders without knowing anything about. (A fourth company was then created.)
I am convinced that the entire QuadrigaCX team came to think that the company may have involuntarily participated in a pumping and unloading program in Vancouver. It's not for me to say if it was before, but I can say that QuadrigaCX was led by tech geeks, competitive, ambitious and smart but not familiar with the Vancouver financial market ecosystem. .
The shareholder question
The story of QuadrigaCX presents other strange twists.
Our law firm, for example, has recently been the target of an extortion case. What happened was that at the beginning of the ongoing case in the Nova Scotia Supreme Court of Creditor Protection, we asked that we disclose to him confidential and confidential information about QuadrigaCX otherwise she would defame us on social media. and to file a false criminal report against our law firm with the forces of the order.
We have obviously not given privileged information to foreigners, but following the extortion of our firm, other people with relevant information and key documents that could facilitate the judicial process are no longer willing to to be known and to be considered to be badociated with QuadrigaCX.
I think we can all understand the worry of the loss of our funds. Our company is one of the major players with more than $ 100,000 due, but I think it's worth remembering that we are not the enemy of this process.
If you have already guessed that this is not correct, as it has been said, that there are no records or QuadrigaCX documents, you would be right. There are numerous records in British Columbia, including court documents, accounting records, audited financial statements, bank records, contract documents, transaction volume documents, and, importantly, material on the records. Refrigerated warehouse insurance still in effect one year after the closure of our company. customer relationship, and can still be.
No party to the proceedings has come to ask for the QuadrigaCX records in our possession. So we wrote to QuadrigaCX's lawyer to inform them of the documents we have available to facilitate the process and offered to make them available.
People have thrown a lot of ink on the shareholders of QuadrigaCX. It is not true that there are three QuadrigaCX companies – there are four, and therefore there are four groups of shareholders. It is true that QuadrigaCX has repurchased and canceled a large portion of its issued and outstanding shares until early 2016.
At the time of our departure, at the beginning of 2016, there were only a few shareholders left and the shareholder lists available to the public do not seem to be up to date. Three shareholders recently told me that they had never been called to an annual general meeting and had not received as much as a $ 1 dividend from QuadrigaCX's share in three years, despite its apparent profitability.
If this is true, it means that the shareholders may not have been allowed to vote on QuadrigaCX matters or vote on the company's instructions.
Decisions taken
The story of QuadrigaCX is not over, but our story ended abruptly one morning when CEO Gerald Cotten decided he no longer wanted QuadrigaCX to be a listed company.
That day, he fired the professionals who, in his mind, were those who worked for "law and order" – the accountant, the auditor and myself, the lawyer regulation.
From then on, Mr. Cotten took exclusive control of QuadrigaCX and operated the stock exchange as if he had no investor, no shareholder, no regulator and no law that applied – no corporate law, no securities legislation, no anti-monetary system laundering law and no contract law. I do not know why Mr. Cotten decided to avoid the regulatory right, but I never spoke to him after that day. (In January of this year, QuadrigaCX announced its death a month earlier.)
Like everyone else, there are many other things I do not know about QuadrigaCX – I do not know if there are 137 million dollars parked in some portfolios; I do not know why the bitcoin addresses that were supposed to contain $ 92.3 million remained empty; I do not know why the address of the wallet containing $ 44.7 million of other cryptos can not be disclosed; I do not know why no law firm has asked for an injunction from Mareva to preserve its badets; I do not know why the litigation is taking place in Nova Scotia when the courts in British Columbia are competent and the witnesses and evidence are in British Columbia; I do not know why there are statements saying that there are no documents; and I do not know why the shareholders did not authenticate the exchange and made it operational so that customers could start recovering some of their badets.
But I know it well. I am happy that QuadrigaCX let us go as one of the men of law and order.
Our legacy with QuadrigaCX covered the period during which it was possible to regulate it in Canada in 2015 for a digital currency exchange, at the time it had bank accounts and audited financial statements and where customers were protected by a cold storage portfolio. Insurance.
Let me finish on this note. I did not want to write this article, but I did so because the holdings of clients held by stock exchanges must be subject to increased regulation and oversight, and unless the accuracy of the information available is improved by hearing those who have a factual knowledge of QuadrigaCX, to understand what has allowed QuadrigaCX to be both highly regulated and simultaneously to evade this regulation, we will not be able to correct the deficiencies, restore the trust consumers and move the sector forward.
Image of Gerald Cotten by Stephen Hui via Christine Duhaime
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