Crypto exchange compromises have become common as rain, where stories detail how easy it is to hack these trading venues and how many millions have been lost over and over again, but these storylines usually disappear in a day or two. Not so with the Canadian fiasco of 2019, the never-ending saga of the beleaguered QuadrigaCX crypto exchange. Yes, losses were significant, roughly CA$190 million (US$140 million), but suspicions surrounding this debacle have led to a stream of conspiracy theories.
The Internet is overflowing with articles on these mysterious circumstances, which include the offshore death of its CEO while in India, a lost password for an alleged cold storage vault, and customers screaming for the lost tokens, as well as cash deposits on account. The family has sought bankruptcy protection, and a court hearing was held yesterday to begin the sorting out process. More than a dozen attorneys were present, which represented 115,000 customers that are “seeking CA$70 million (US$52,000) in cash and CA$190 million (US$140,000 million) in various cryptocurrencies.
Ernst & Young (E&Y), the monitor appointed by the court, made a report covering the previous nine days, which it claimed were “hectic”. It also noted that lawyers’ fees for CA$100,000 were also due, but Quadriga claimed that, “As of today, we don’t have anything.”
In its first report on the 6th of February, E&Y had noted that the exchange had erroneously transferred 103 BTC (around US$350,000) to the “cold wallets, which the Company is currently unable to access.” Internet sleuths quickly identified the five address destinations, which had been dormant since last April. One crypto developer, who preferred to be anonymous, subsequently quipped:
Despite what many people think, blockchain analysis is far to be 100% reliable.
Since this story broke, the facts have mimicked a poor rendition of a soap opera. The death of Gerry Cotten, the firm’s CEO, triggered a strange chain of events. As we reported in early February:
Accusations have been flying about, partly because Cotten died in early December, yet the family held off until January to say anything about it. According to the family’s Facebook post, Cotten, age 30, died due to complications with Crohn’s disease on December 9, 2018 while travelling in India, where he was opening an orphanage to provide a home and safe refuge for children in need.
Independent investigators soon determined that Cotten had allegedly died in a region of India known for providing fake death certificates. Irate customers demanded that Canadian authorities examine the body and provide proof of death. The contention is that an elaborate hoax had been concocted to cover up an exit scam for those with access to the funds. QuadrigaCX had been known to have financial problems, had been in court to demand the return of funds that a local bank had seized, and outside reports claimed the exchange never had any crypto reserves.
Chat rooms have been alive with conspiracy theories and a litany of facts that seem incredulous at best. Per one account:
Cotten is having financial troubles at his company, so he travels to India to work on an orphanage? While suffering from Crohn’s he decided to go to India? Gets married and sets up a will within a month of his “death.” Manages to set up a plan ($100k) for his two dogs so that they’re taken care of. Doesn’t think to make sure the nearly $200m his exchange watches is also taken care of.
We may never know the truth behind these bizarre events, but we do know that E&Y has confiscated a number of Cotten’s electronic devices, including four cell phones, four laptops, and three fully encrypted USB keys. Can these devices possibly reveal another trail of mysterious goings on behind the scenes? In the meantime, Justice Michael Wood has committed to issue a written decision in the case in a week.