The infamous QuadrigaCX case is under investigation in Canada. The Ontario Securities Commission (OSC) found former QuadrigaCX CEO Gerald Cotten guilty of misappropriation of users’ funds. Instead of putting the customers’ money into cold storage, Gerald was buying properties across the globe.
Cotten and his wife got luxury estate (more than 16 properties in Nova Scotia, British Columbia, etc.), yachts, expensive cars, personal aircraft, and more.
Gerald Cotten Misappropriated at Least $115 Million on Personal Needs
Back in 2016, QuadrigaCX was one of the largest cryptocurrency trading spots in Canada. Having no official registration, it attracted more than 76,000 users. The exchange CEO allegedly stored at least $169 million in cold wallets, with passwords known by Cotten himself. He didn’t use the exchange’s official wallets to hold the funds, instead, he sent them to his own accounts and wallets:
“Cotten was the only person with the passwords to the accounts holding Quadriga’s funds—cryptocurrency and cash—worth approximately a quarter billion U.S. dollars. Nobody knew how to find the money.”
Gerald used $115 million for fraudulent trades on other big exchanges. He was moving customers’ funds from pillar to post without consent from the exchange’s users.
The OSC released the report today featuring the full list of Cotten’s deeds. Per the report, Cotten lost at least $28 million in unsuccessful trading on three other exchanges. He also used a bunch of fake accounts on his exchange to emulate interest from retail investors.
The investigation took 10 months, with former exchange employees being under discussion. A representative counsel was appointed for them because ‘vulnerable group had little means to pursue a claim in the complex CCAA proceedings.’
Per the provincial Canadian regulator:
“This lack of registration facilitated Cotten’s ability to commit large-scale fraud without detection. So did the absence of internal oversight over Cotten. From 2016 onwards, Cotten was in sole control of a company that had hundreds of thousands of clients and transacted over a billion dollars of fiat currency-denominated assets and over five million crypto-asset units. He ran the business as he saw fit, with no proper system of internal oversight or controls or proper books and records”.
A Ponzi Scheme Looking Like Modern Tech
The regulators claim that Cotten was spending clients’ money to cover budget holes and send payouts requested by some of them. This means that the image of the then “licit” exchange (and cryptocurrency operator) was just a hi-tech cover for a classic Ponzi scheme.
In case of a fund shortage, the 30-year-old CEO was opening fake accounts with made up balances (in both fiat and crypto) to perform false trading with QuadrigaCX users.
Gerald Cotten died of Crohn’s disease in India, while being on a honeymoon with his wife. Lawyers of the exchange investors demanded his body be exhumed, because of the strange circumstances of his death. Crypto adherents suspect he is still alive, hiding from judgment and possibly living somewhere in Asia with a new identity.