Who’s really to blame for the QuadrigaCX scandal?

“Where did that money go?” Andrew Chang, the CBC’s National News anchor, was polite. But he was persistent.

“You thought at the time that this was just the way a legitimate business operated?” he queried his subject with eye-raise-of-doubt insistence in a feature interview last week.

Then, circling back, obviously unsatisfied. “But did it, though [make sense at the time]?”

More polite. More persistent. More skeptical. “I guess I just wondered, did any of that seem fishy to you?”

The bit in his teeth now, zooming in. “Did it ever occur to you that he might be breaking the law?”

You know this story. A seemingly healthy young Nova Scotia businessman named Gerald Cotten travels to India on his honeymoon — India! On his honeymoon? — after having only recently married a woman who’d had three — count ’em, three! — last names, and after having only signed his will days before, leaving everything — of course — to her.

He supposedly dies.

He supposedly has the only key to unlock the virtual vault containing hundreds of millions of dollars belonging to more than a hundred thousand customers of his bitcoin exchange business. He takes the key to his grave.

The announcement of his death is delayed. The funeral is private. The casket is closed.

Supposedly dead.

Sounds like an exit scam.

That must mean she — Jennifer Robertson, she of the three last names, the beneficiary of the will with the $100,000 set aside for the care and feeding of their two chihuahuas — is in on it.

Gerry must now be, as more than one journalist has speculated, sitting on a beach in some exotic, extradition-free backwater, sipping a mai tai (my bet would have been Long Island iced tea) and biding his time. The plan is that once the scandal subsides, his partner in crime — did I mention those three last names, the last-minute marriage, and the last-second will? — will join him and they will live happily ever after on their ill-gotten gains.

It’s a compelling narrative, in part because it sounds like the premise for an addictive Netflix series romp. Will they get away with it?

But let me suggest another narrative, one based on having spent more than 40 hours interviewing Jennifer to help her write her memoir, Bitcoin Widow: Love, Betrayal and the Missing Millions. The book was officially launched last week. That’s how she came to be virtually sitting opposite the polite, persistent Chang and other journalists, all of them seeking The Truth.

Truth may indeed sometimes be stranger than fiction, but it can also be much more mundane.

One quick example. Conspiracy theorists have made much of the fact that the only recently married couple signed their wills just days before they left on that fateful trip to India.

But here are some other facts: Gerry and Jennifer had been living together for close to four years when they decided to make their relationship official. Happens all the time.

They’d also talked, as couples often do, about the need to make their wills but hadn’t gotten around to it, even though they’d begun to collectively accumulate valuable real estate and other assets. But then, a month before they were to leave on their honeymoon, Jennifer’s brother had a serious heart attack. That made the need for a will suddenly more urgent and real. Jennifer talked to a lawyer who came up with a draft and called to arrange a meeting so the two of them could meet with her to discuss and sign.

Jennifer told the lawyer about their planned honeymoon — the trip was supposed to last more than a month — and suggested they sign when they returned. The lawyer unsurprisingly disagreed. “You have to come in and sign this before you go to India. You’ve given me directions for your will, but you have not signed it. This is not good. You have to come in.” They came in. They signed.

Suspicious?

When my wife and I were in our early thirties, a man we knew — similar age, similar life circumstances — died unexpectedly without a will, leaving his wife to deal with the messy fallout while she also grieved her loss. We — and other couples in our circle — soon arranged for wills of our own.

It happens.

There are everyday explanations for most of the conspiracy theories about Gerry’s death in Jennifer’s memoir. As authors like to say, read the book.

But here’s my Cliff’s Notes version of the beginning of that narrative.

A young woman coming off a messy divorce swipes right on Tinder and matches with a man she comes to believe will be the love of her life. He is an entrepreneur who operates a trading business called QuadrigaCX dealing in a commodity — bitcoin — she’s never heard of. When she asks him what it is, he sends her a link to a full-page feature in The Financial Post entitled, “Brave New Digital Currency World.”

Gerry was the star of the article (actually a sponsored-content ad). “He has been focused on developing the most secure, easiest to use trading platform to simplify the buying and selling of bitcoins for a growing audience,” it said, noting that his company not only employed the “most advanced security measures in the industry,” but that it was also the “first bitcoin platform in Canada to hold a money services business licence from FINTRAC (Financial Transactions and Reports Analysis Centre).”

The Financial Post? What’s not to believe?

The business went through some ups and downs, but it grew exponentially. They became rich beyond their wildest dreams. And, yes, let’s be clear, Jennifer enjoyed every minute of the travel, the ability to buy whatever she wanted without asking the price, the opportunities it gave her to start her own business, and on and on. She says she had no reason to believe it wasn’t legitimate.

But the cash? What about the cash? What about the infamous photo with the piles of it on their kitchen counter? Wasn’t she suspicious?

There are some things you need to understand in order to understand that cash.

Bitcoin was only “invented” in 2009. It doesn’t really exist in any real bill-and-coin world of ordinary national currency.

That said, its tantalizing possibilities as a form of investment quickly attracted the interest of would-be buyers, drawn by its next-new-thing glitter and/or/especially by the fact it operated beyond regulation and oversight from the usual national governments and their finicky financial rule-makers — and, of course, tax collectors.

The traditional financial institutions like banks were wary. In fact, they’d often shut down accounts if they discovered they were linked to bitcoin. At one point, for example, CIBC froze the accounts of some of Gerry’s payment processors, tying up more than $25 million for almost a year.

Didn’t the bank’s suspicions arouse her suspicions?

Gerry’s argument — one shared among many in the bitcoin world — was that the banks were simply out-of-date and trying to protect their turf against an inevitable bitcoin future.

Until the financial world caught up with the pioneers like Gerry, cash was the way around those Neanderthal institutions.

That was the argument.

It wasn’t as if cash didn’t flow both ways — in from customers using cash to buy bitcoin at an increasing number of Bitcoin ATMs and out to customers choosing cash when they wanted to trade in their bitcoin gains for regular currency.

Every day, Gerry would fill envelopes with cash from those ATM machines and mail them to customers, which Jennifer would then drop off at the post office. No one complained when the cash arrived.

We’ll circle back to those customers.

But first this no-longer news bulletin.

It turns out that Gerry Cotton — the man Jennifer Robertson fell in love with, and that thousands of people trusted with their life savings — was a pathological liar, a scam artist of the first order. He was, it seems, very good at what he was.

According to the only definitive account of what really happened at QuadrigaCX, an after-the-scandal report by the Ontario Securities Commission, Gerry “created and traded fake assets with clients of the platform under aliases. Cotten sustained trading losses of approximately $115 million and used Quadriga clients’ assets to cover those losses [and] sustained losses of approximately $28 million trading client assets on three external trading platforms.”

A classic Ponzi scheme, with a tasty side dish of gambling.

In October 2019, after the bankruptcy trustee had revealed the extent of the fraud and the reality Gerry had mixed Quadriga’s assets with his personal accounts to fund his and Jennifer’s lifestyle, she returned to the trustee $12 million in assets she’d previously assumed were legitimately hers.

After that, Jennifer ended up living in her father’s attic, teaching English online to Chinese children in the middle of the night to make ends meet and beginning to rebuild her life. (She will graduate from Mount Saint Vincent University with her education degree later this spring.)

She has not yet disappeared to rendezvous with Gerry in that happy-ever-after, extradition-free backwater.

Gerry’s customers? While Jennifer has been an easy target for journalists and others looking for someone to blame for the scandal, few have questioned the culpability of the investors who chose to put their money in QuadrigaCX.

Without attempting to minimize the financial losses they suffered, it is worth pointing out that they — perhaps more than Jennifer —  understood the risks they were taking. Bitcoin was new, it was volatile, it was unregulated, which was, in truth, one of its attractions for many of those same customers.

All of that made it ripe for fraud Gerry Cotton perpetrated.

When they realized they’d been duped, more than a few of those same investors took their anger out on Jennifer. She was stalked, she was subject to vile online death threats, and, eventually, she was driven to attempt suicide.

And yet no one asks them what the hell they were thinking, trusting this scam artist with their life savings?

Back to Andrew Chang. Chang had the chance to put exactly that question — politely if persistently, of course — to one of those investors he interviewed as part of his feature with Jennifer Robertson.

Michael Perklin “met Cotton at a cryptocurrency meet-up,” Chang reported. They became “fast friends,” and Perklin not only invested several thousands of dollars of his own money in Quadriga, but he also convinced friends and family to do the same. They ended up losing “well into the seven-figures,” he told Chang.

“More than a million dollars?” Chang marvelled.

“Yes.”

And that was that. No follow up, no did-any-of-it-seem fishy, no did-it-ever-occur-to-you-that-he-might-be-breaking-the-law questions.

Later in the interview, when Perklin was asked whether he thinks Gerry might still be alive — the continuing favourite conspiracy theory — he responds with what seems to be befuddlement: “Everything I knew about Gerry seems to have been a lie.”

Gerry Cotton, it’s clear, was a very good liar.

So, why is Jennifer Robertson the only one to blame for believing him?

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