In January, QuadrigaCX announced that the death of the founder resulted in the loss of $190 million worth of crypto deposited by customers of the exchange.
This raised a lot of questions on how the exchange was run and why one person should be in charge of the funds. Since then, investigations have shown that there are more questions that have remained unanswered especially after it became obvious that the investors’ money seemed to have vanished into thin air.
Death in India
The reports say that Gerald Cotton, the 30 year old founder had died during a honeymoon in India. Considering that this is a country where getting fake death certificate is not difficult, the scenario raised questions on the possibility of foul play.
It later became obvious that the founder’s death was confirmed as his remains was brought back to Canada for interment.
Funds Not in Cold Storage
Nevertheless, the fact that the funds were not in the cold wallet of the company has continued to be a source of concern to investigators.
There is suspicion that the funds may not even exist judging from the fact that QuadrigaCX has had some financial difficulties especially from 2018 when the Canadian Imperial Bank of Commerce (CIBM) froze $30 million of its assets because the ownership could not be proven.
Exchange hacks are not uncommon. What makes the QuadrigaCX tragedy peculiar is that the funds could not be accounted for. There is no evidence that it was in the custody of the exchange when the founder died even though other managers behind the scene gave the impression that Cotten died taking the funds with him.
Further checks showed that not just was QuadrigaCX having tough times financially, this is one exchange that was not professionally managed. It is possible that the funds were mismanaged judging from the lifestyle of the founder.
Cotten was worth tens of millions of dollars and owned three properties, luxury cars and even an aircraft all acquired despite the seeming financial difficulties that the exchange passed through.
Mismanagement doesn’t foreclose the quest to find how the funds were moved. There are speculations that the company tried to trade its way out of financial difficulties but when the price of Bitcoin rose in 2017, it became an even more daunting prospect with the seizure of funds heralding a nail in QuadrigaCX’s coffin.
Just A Few Support Staff
Another interesting fact is that the exchange seemed understaffed. In reality, there were just four individuals running things behind the scene, a scenario that is a recipe for disaster.
For instance, the Kraken CEO, Jesse Powell who has shown interest in the QuadrigaCX misfortune said that the site backup happens once in an hour which makes it easy to lose customer transactional data if the server goes down.
Also it was found that there is just one developer, Alex Hanin in charge of the exchange contrary to the standard practice of reputable exchanges some of which employ the services of more than a hundred developers. This is to make sure that problems do not arise because one developer has too many responsibilities.
“That seemed odd to me but maybe just indicative of shortcuts being taken. You’ll probably find this business is basically a façade with nothing really going on behind the scenes,”
A Partner with Dark Past?
Cotten’s co-founder, Michael Patryn and his wife, Jennifer Robertson are the other key players in the company. Patryn is suspected of having criminal records according to reports by The Globe and Mail.
The insinuations are that he is Omar Dhanani, a convicted felon, an allegation which he denied even though there are records showing that he hired a the services of Reputation, a Toronto based online data cleaning service to dissociate his activities from his present identity.
Patryn also claims that he had left QuadrigaCX three years earlier but this may be unlikely. Powell said that he may have distanced himself publicly from the company but still was involved from the shadows.
A Front to Launder?
The involvement of Patryn also raises issues on the purpose of the exchange. Considering that QuadrigaCX is involved in crypto – fiat conversion, there are speculations that it may be a front for money laundering.
Ernst and Young, the court appointed monitor revealed through its lawyers that Cotten’s wife said that he was funding the exchange with his own money during the financial difficulties. According to the firm, Steward McKelvey, Jennifer Robertson said,
“While I had no direct knowledge of how Gerry operated the business, he told me that he had been putting his own money back into QCX to fund user withdrawals in 2018 while the CIBC money remained frozen. I believe Gerry had the best interests of the business in mind, and cared for his customers.”
In the meantime, investigators are scouring exchanges for traces of the missing funds even though they haven’t made a break yet. If you have hints on what happened to the funds, you could be rewarded with the Kraken $100,000 bounty.