The first clue something was wrong to users of QuadrigaCX, Canada’s largest cryptocurrency exchange, was when its website was suddenly replaced by a website maintenance notice last week.
What QuadrigaCX’s 363,000 clients, 115,000 of them carrying balances in their accounts, would soon learn was the only person who knew where some $260 million of their money was and how to get at it had died in early December.
Quadriga Fintech Solutions Group, now seeking protection in the Nova Scotia Supreme Court under the Companies’ Creditors Arrangement Act, was a company like no other. As 2019 opened, QuadrigaCX was a multi-million dollar Canadian business success story that had no officers or directors on its Board of Directors, no physical offices, no staff and no business bank accounts.
Today it owes its users $70 million in cash, $191 million in cryptocurrencies.
It currently has access to $375,000 in cash held by unspecified third parties and a little over half a million dollars worth of cryptocurrencies. There’s another $25.7 million in the form of bank drafts.
Founded as a numbered British Columbia company in November 2013, the QuadrigaCX cryptocurrency exchange opened a month later allowing users to exchange money for cryptocurrencies, originally Bitcoin, then expanding to offer Bitcoin Cash, Litecoin, Ethereum and others. The site became popular due to its convenience and ability to offer multiple payment options to users converting their crypto holdings, including cash in unmarked envelopes sent through the mail.
A 25-year-old Gerald Cotten and his partners had set up the original QuadrigaCX in Vancouver but by 2016, Cotten, working on a laptop out of his modest Fall River, Nova Scotia home was the sole officer, director, and holder of the company’s “cold wallet” offline reserves of cryptocurrencies currently worth about $191 million.
QuadrigaCX ran on the efforts of some seven sub-contractors, each paid between $75,000 and $85,000 a month to handle the website and database administration, verify user IDs, and maintain a social media presence. A network of third party payment processing companies provided banking access and services.
Cotten alone would dispense cryptocurrency as needed to the contractors and third-party payment processors and keep all organizational account records.
In January 2018 the CIBC froze the accounts of one of those third-party payment companies, Billerfy Labs, when one of its subcontractors temporarily put the account into overdraft, tying up some $25.7 million in QuadrigaCX user funds including $2.3 million that was being kept in the sub-contractor’s own personal account. The money, returned by the Ontario courts in early December, is in the form of BMO bank drafts that Quadriga Fintech cannot cash without a bank account.
Six days later Gerald Cotten died suddenly while traveling in Jaipur, India from complications of Crohn’s Disease first diagnosed in 2012. His body was returned to Nova Scotia where a local Halifax funeral home issued a death certificate December 12. His sudden and unexpected death revealed he had made no known contingency plan for others to access his encrypted files, nor were there backup versions others could access.
Nova Scotia Supreme Court documents filed by Cotten’s widow Jennifer Robertson show that at the time of the QuadrigaCX exchange going offline, it had about $586,000 worth of six different cryptocurrencies, mostly Bitcoin, in its “hot wallet,” cryptocurrency they have full access to that is online and able to be immediately transferred. About $1.5 million dollars worth of pending cryptocurrency withdrawals had been put in motion at the time of the exchange closing.
Robertson, now one of three directors of the Quadriga Fintech board along with her step-father Thomas Beazley and Jack Martel, a Vancouver-based Quadriga Fintech board member from 2014-15, states she had no prior involvement with the business but is seeking creditor protection to allow time to find missing assets, access the $25.7 million in bank drafts through prospective court appointed monitor firm Ernst & Young, and market the QuadrigaCX software platform to interested buyers.
Chief among those assets are a simple laptop computer and a thumb drive, both encrypted and holding the secret whereabouts of about $191 million in cryptocurrency. A computer expert is attempting to access them.
The court documents also show money scattered among third party payment providers with some $12 million in the custody of one, WB21, which refuses to answer communications from Quadriga.
Robertson claims that since since the CIBC account freeze, both her late husband and herself have put their own money into the company to keep up operations and she personally is funding the CCAA proceedings to a maximum of $300,000.