A Canadian Mystery Mobilizes a Global Crypto Community, What Happened at QuadrigaCX?

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The story almost has it all. Snowy Canada, an Indian Orphanage, a sudden death, troubles with bankers, an encrypted laptop and USB and the claimed loss of $180 million worth of crypto.

“It is with a heavy heart that we announce the sudden passing of Gerald Cotten, co-founder and CEO of QuadrigaCX. A visionary leader who transformed the lives of those around him, Gerry 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.”

So said Jennifer Robertson, Estate Executor of Gerald Cotten, on an unclear date with the statement now close to vanishing from the internet, but still saved by Google Cache.

The statement was probably published on or around January 14th 2019 as that’s when the official QuadrigaCX twitter account tweeted it.

Two weeks later, an affidavit is signed by Robertson in support of an application for creditor protection. In that she says:

“After Gerry’s death, Quadriga’s inventory of cryptocurrency has become unavailable and some of it may be lost.”

She claims Gerald Cotten was custodian of 26,500 bitcoin, 11,000 bitcoin cash, 11,000 bitcoin cash SV, 35,000 bitcoin gold, nearly 200,000 litecoin, and about 430,000 eth, but some of it may have been kept on exchanges with it unclear at this stage where the private keys were held.

Cotten was apparently running Canada’s biggest crypto exchange from his laptop. A laptop that happens to be encrypted with Robertson not having the password.

There’s a USB too, also encrypted, with an expert trying to hack into both. They thus claim they can not access the cold storage, but they also say there was an automatic method for the hot wallet to be topped up.

Just how that method worked exactly isn’t very clear, but more than a month after Cotten’s death, Aaron Matthews, the Head of Operations at Quadriga, said on or around January 17th:

“Hot wallets are consistently being refilled, there has been higher demand for crypto that has caused these delays. They are going out in sequence and we are working on improving these timelines.”

How were they being refilled if the private keys could not be accessed is an obvious question. The initial statement, moreover, did not suggest access to the cryptos had been lost.

The Crypto Mystery

There’s a signed statement by Robertson so we have to take her at her word until, if ever, she is questioned in court. Thus assuming there was indeed such death, she probably would have been in shock and grieving.

She then managed to come to terms with it to some extent as the new year begun as she was able to pen that statement. Prior to it, presumably, she would have gone through all the records, business operations and so on. You’d think thus she would have found out the keys had been lost. In the statement, however, she suggests things are sort of running kind of as normal where the crypto side is concerned, stating:

“While smaller amounts will continue to be processed daily, effective immediately, we have implemented daily and monthly withdrawal limits. The limits are intended to ensure continued stability to our platform and enable QuadrigaCX to process future payments within reasonable timeframes. While we have instituted these ranges they are, on average, 15% above industry standards. CAD, USD and Crypto limits summarized below are based on the value of the “Last Trade” price.

No Verification (Crypto only): $5,000 / $10,000
Level 1 Verified: $10,000 / $25,000
Level 2 Verified: $10,000 / $50,000
Business Level 2 Verified: $100,000 / $250,000″

The exchange had been facing fiat withdrawal problems since at least October as Canadian banks apparently did not want to service them. They had to rely on payment processors, but one bank seemingly froze a significant amount. This led to considerable problems and legal battles with Robertson stating Cottons had to fund some of the expenses from his own pockets.

There are no suggestions of any problems on the crypto side. In fact the statement made on the 14th of January suggests all was to continue:

“In the coming weeks, our customers can expect improvements to our site and the services we offer… One of Gerry’s many accomplishments was his ability to build a highly capable and successful management team, which will continue his legacy.

Aaron Matthews was one of those team members… Many of our customers have already dealt with Aaron and know that he is the right person to continue what Gerry started.”

There were thus no suggestions that there was anything wrong on the crypto side nor were there any complaints until January 16th when a Quadriga customer says his BTC withdrawal was showing as pending for 24 hours. The answer from the official Quadriga twitter account was:

“Hot wallets are consistently being refilled, there has been higher demand for crypto that has caused these delays. They are going out in sequence and we are working on improving these timelines.”

More crypto complaints then follow until Quadriga’s site goes blank on or around January 31st 2019 with a message explaining bankruptcy proceedings had begun.

“We have thousands of wallet addresses known to belong to @QuadrigaCoinEx and are investigating the bizarre and, frankly, unbelievable story of the founder’s death and lost keys. I’m not normally calling for subpoenas but if @rcmpgrcpolice are looking in to this, contact @krakenfx,” said Jesse Powell, Kraken’s CEO.

In later comments he made it clear that what he meant was they know what public blockchain address belongs to Quadriga, rather than Kraken being a custodian of some of Quadriga’s private keys.

In short they’re engaging in blockchain analysis to see where the funds are, how they’ve moved and how they might move, rather than actually having possession of them.

We’ll have to wait and see whether such analysis will bring any results, but this may be more a matter of questioning the involved parties, perhaps under oath, to clarify certain aspects.

Primarily, why did the exchange manage to operate for about six weeks after Cotton’s death? Why was Quadriga’s personnel saying hot wallets were being refilled? How were they being refilled? Why did Robertson not reveal the loss of private keys in the initial public statement? And far too many other questions.

While blockchain detectives might perhaps reveal some aspects, this does appear to be more a matter for an actual detective as 115,000 individuals, mainly Canadians, are affected with hundreds of millions on the line.

The story however, although with some differences, is a bit familiar. Bank troubles lead to fiat withdrawal delays and then the crypto suddenly goes missing.

Raising the most important question: was this exchange operating on fractional reservers and/or were customer’s crypto funds used to fund some of the legal expenses and perhaps other expenses?

That we don’t know, but eventually all that is to know will probably come out as there are far too many people affected and with an interest in finding out just what happened in Canadia.

Copyrights Trustnodes.com

 

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