More than a year after the sad end of Canadian cryptocurrency exchange QuadrigaCX, a new investigative report published by Ontario’s securities regulator reveals that the exchange had gone rogue long before the co-founder was pronounced dead in India.
QuadrigaCX was one of Canada’s largest exchanges until late 2018 before the sudden passing of its co-founder and CEO Geral Cotten. The company then claimed only Cotten had access to the private keys of the exchange’s cold wallets, which held some reported $190 million worth of cryptocurrencies belonging to thousands of investors.
OSC: An Old-fashioned Fraud
However, after a ten-month investigation into the mysterious case, Canada’s biggest securities regulator, the Ontario Securities Commission (OSC), has published its findings calling QuadrigaCX “an old-fashioned fraud wrapped in modern technology.”
According to the OSC report, the exchange collapsed not because of Cotten’s death but because of the fraud the 30-year-old CEO perpetrated while he was alive.
During the investigation, the OSC team interviewed witnesses, analyzed trading and blockchain data, collaborated with foreign regulatory agencies, and used bank information to backtrack QuadrigaCX’s operations until the unfortunate dismissal of the co-founder.
The regulator found that customers’ funds on the exchange were already missing two years before Cotten’s death.
Misusing Investors’ Funds
Launched in 2013 during the early years of Bitcoin, QuadrigaCX quickly became a reputable exchange. However, by 2016, Cotten took full control of the assets, and the platform supposedly became a Ponzi scheme. He started spending on a lavished lifestyle and trading with customers’ funds as he saw fit.
The report said the misappropriation of funds went on for years, and QuadrigaCX started paying old investors with deposits made by new investors until late 2018 when the CEO finally kicked the bucket. Sadly clients could not have known the fraudulent activities being conducted by Cotten.
“Cotten sustained real losses when the price of crypto assets changed, thereby creating a shortfall in assets available to satisfy client withdrawals. He covered this shortfall with other clients’ deposits — in effect, operating a Ponzi scheme,” the OSC said.
The findings also revealed that the total fund lost in QuadrigaCX was CAD 169 million ($124.7 million) and not $190 million, as estimated in earlier reports. The investigators noted that as much as CAD115 million was lost to Cotten’s unsuccessful and fraudulent trades.