Over 100 bitcoins tied to former crypto exchange QuadrigaCX mysteriously transferred

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An advertisement for the Bitcoin cryptocurrency is displayed on a street in Hong Kong, February 17, 2022. Kin Cheung/The Associated Press

More than 100 bitcoins previously held in inaccessible virtual wallets linked to former cryptocurrency exchange QuadrigaCX have been transferred four years after the death of the company’s founder led to its collapse.

It is unclear who moved the 104 bitcoins this month, worth approximately $2.4 million, or how anyone could do so. Bankruptcy trustee Ernst & Young Inc. said in 2019 it was unable to access wallets, meaning funds could not be recovered to help compensate users who lost money. money when the exchange went out of business.

Unfortunately, all we know now is that such transfers are not permitted, said Magdalena Gronowska, a member of Quadrigas’ Affected Users Committee. Hopefully the blockchain tracing will provide more information and we will be able to follow up and initiate a recovery of some funds.

Ms. Gronowska noted that some bitcoins are sent to crypto mixing services, which obscure the origin and owners of the funds, making recovery efforts more difficult.

The trading slump was triggered in December 2018, when Gerald Cotten, founder and chief executive of Quadriga Fintech Solutions Corp., died of complications from Crohn’s disease while on honeymoon in India.

Deep read: How did Gerald Cotten die? A Quadriga mystery, from India to Canada and back

Quadriga was once the largest crypto exchange in the country, and EY discovered that Mr. Cotten, who lived in Nova Scotia, was the only person with the passwords needed to access the digital wallets in which customer funds were kept. . As a result, around 76,000 users owed $215 million when he died.

The Ontario Securities Commission later concluded that Mr. Cotten, operating without oversight or internal control, was running a Ponzi scheme. He opened fake Quadriga accounts under pseudonyms, credited himself with cryptocurrency, and transacted. When his bets went wrong, Mr Cotten used client funds to cover his business losses, while embezzling money to finance his lifestyle.

Gerald Cotten, CEO Quadriga cx at “Bitcoin House” in Paris, France. May 16, 2014Facebook/Quadriga CX

In February 2019, a day after the Supreme Court of Nova Scotia granted Quadriga creditor protection, the exchange inadvertently transferred all 104 bitcoins to cold storage wallets to which it did not have the private keys to access. Cold wallets are offline storage facilities where cryptocurrency is kept to protect it from hackers.

EY said at the time that the transfer was a mistake, and Quadriga management told them that a platform setting had been changed in error, triggering the automatic transfer.

These funds have since been moved after sitting idle for more than three years. The transfer was revealed by a Twitter user named ZachXBT, which exposes bad actors in the cryptocurrency and non-fungible token markets.

EY said in an update to users on Tuesday that it had not initiated the transfers. A spokesperson for Miller Thomson, the law firm representing Quadriga users, declined to comment.

Jennifer Robertson, the widow of Mr Cottens, said she was shocked to learn of the transfer. My head is still spinning with all the possibilities, Ms Robertson said in an email, adding that she hopes the funds can be recovered for users.

Jennifer Robertson, the widow of QuadrigaCX founder Gerald Cotten, poses in Mount Uniacke, Nova Scotia, Wednesday, Jan. 5, 2022.DARREN CALABRESE/The Globe and Mail

This is news I never expected to hear and I fear the tidal wave of new conspiracies which I am sure will surface because of it, she said.

Ms Robertson suffered harassment and death threats from some aggrieved users who suspected her of being involved in her husband’s fraudulent activities.

Users have yet to receive compensation, and EY has only managed to recover $46 million in assets. The process was slow in part because the Canada Revenue Agency had to conduct an audit to determine the taxes Quadriga owed.

The ARC audit has been the biggest roadblock to a distribution in this case, Miller Thomson said in an update to users last August. The CRA submitted its claim that month, which Miller Thomson says is an important step toward compensating users.

The fall of Quadrigas and the death of its founder attracted global media attention at the time, and has since spawned a Netflix documentary and a memoir by Ms Robertson. In December 2019, Miller Thomson unsuccessfully requested the RCMP to exhume Mr. Cottens’ body and conduct an autopsy, given the questionable circumstances surrounding his death.

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