Crypto exchange in court: It owes $190m to netizens after founder 'dies without telling anyone vault passwords'

QuadrigaCX granted 30-day legal protection by judge

DOor to a bank vault. Photo by Shutterstock

A Canadian court today granted legal protections to a Great White North cryptocurrency exchange that is holding some $190m that can't be accessed – allegedly because its founder, the only person with the passwords to the digital vaults, died.

QuadrigaCX went to a Nova Scotia judge for temporary protection from potential creditors' lawsuits while it tries to figure out a way forward. Its founder and CEO Gerald Cotten, it is claimed, passed away in India before Christmas without leaving any written record nor copies of the passwords and keys to unlock his organization's financial reserves.

It is believed that, save for some money in what is effectively a petty cash drawer, virtually all of the exchange's funds are locked up, meaning customers are unable to withdraw their dosh, practically speaking.

Some $137m in netizens' crypto-coins are held in so-called cold storage – one or more offline wallets – the password for which only Cotten knew, it is claimed. Additionally, Cotten's password-protected laptop must be decrypted to access bank accounts that hold millions of bucks in normal currency, it is said. In total, QuadrigaCX reckons it is unable to get at around $190m in digital and real-world money owed to customers.

On Tuesday, Nova Scotia's supreme court gave the exchange 30 days of protection from any legal action by creditors, according to an order shared by the business.

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"For the past weeks, we have worked extensively to address our liquidity issues, which include locating our very significant cryptocurrency reserves held in cold wallets required to satisfy customer cryptocurrency balances on deposit and sourcing a financial institution to accept the bank drafts being transferred to us," QuadrigaCX management said in a statement that includes an FAQ for the curious.

"Unfortunately, these efforts have not been successful. Since we were unable to resolve these issues in a timely fashion, we did not want trading to continue on our platform. We filed for creditor protection to help resolve these matters and preserve the interests of our customers."

In filing for protection, QuadrigaCX, which went offline last week after struggling to pay out cash since before December, will be shielded from lawsuits by its aggrieved customers, but will have to work with a court-appointed financial manager – in this case Ernst and Young – to scrape together whatever cash it can, mostly funds held by payment processors, and start to pay back some of the money owed.

Also surfacing on Tuesday, via CoinDesk, was the first public copy of what's said to be Cotten's death certificate. The paperwork, filled out in India where Cotten apparently passed away December 9 from complications of Crohn's Disease, lines up with his wife Jennifer Robertson's earlier statement that the chief exec died that day while traveling through Jaipur. He was apparently opening an orphanage at the time.

This document, if legit, is an important revelation, as it may well scuttle speculation the funds were allegedly stolen by the company or moved to other accounts as part of an elaborate hoax.

Lingering questions

There is some suggestion, though, that no cold wallets stuffed with Bitcoin actually exist, and that "QuadrigaCX was using deposits from their customers to pay other customers once they requested their withdrawal," according to one industry watcher. Thus, there are no unrecoverable vaults of crypto-coins, as claimed, in that case. Also, it's reported that Cotten signed his will just two weeks before his apparent death, leaving pretty much all he had to Jennifer.

On the other hand, Ernst and Young are now on the case to get to the bottom of the matter. Meanwhile, the exchange's staff insist, "Gerry took sole responsibility for the handling of funds for QuadrigaCX and as such no one other than him can access the coins in the cold wallets. We have hired outside consultants to access these cold wallets. To date, we have accessed a few coins, but not many. Work on that front is ongoing."

All in all, most of this will be of little comfort to the roughly 110,000 customers whose investments are so far lost because nobody, it is claimed, at the exchange sought to obtain any copies of the CEO's access keys before his trip to India. ®

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