$250M Gone After Quadriga CEO Declared Dead
Investor Confidence In Cryptocurrency Dissipated Following The Quadriga Scandal
By Rick Rodell
Ever wonder why cryptocurreny is still considered a risky business after it has been around for a decade, with its its value risen from ground zero all the way to some $20K a year ago, before tumbling down to about $3K now?
Saved for gold-rush speculators, most conservative investors are not exactly comfortable with cryptocurrency simply because it’s backed by nothing, not regulated, and not insured. In the event of any dispute, investors are essentially on their own.
Quadriga founder’s widow alleges $250M in assets locked by passwords that Gerald Cotten took to grave
Just imagine, an operation involving hundreds of million dollars public fund is completely under the control of one single young man, Quadriga CEO Gerald Cotten, who “allegedly passed away in India” in December. And there goes all the money with practically no recourse whatsoever for investors.
Gerald Cotten, CEO of QuadrigaCX died Dec. 9 in India due to complications from Crohn’s disease (Gerry Cotten memorial/Facebook)
It’s scary, to say the least.
Personally, the Quadriga incident is a blessing in disguise as I was about to sink all I have into Bitcoin. Now I gotta think not twice, but at least trice. And in the event I decided to invest in cryptocurrency, it will be minuscule in amount under present circumstances.
Is Quadriga A Ponzi Scheme?
As the old saying goes, if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.
While Nova Scotia Supreme Court granted Quadriga creditor protection and ordered Ernst and Young to take possession of the laptop. as the embattled cryptocurrency exchange says it cannot access some $250 million worth of customers’ cyrptocurrency stored in virtual safes that may only be accessible through its defunct CEO’s encrypted laptop.
Quadriga mystery deepens with little evidence of cold wallets containing $250M
A cryptocurrency analyst says there is little evidence that tens of millions of dollars of assets allegedly trapped on hard drives belonging to the deceased founder of a Canadian cryptocurrency exchange are being stored in so-called cold wallets.
But experts who have analyzed publicly available cryptocurrency transfer patterns say there’s little sign of digital vaults stuffed with millions and linked to Quadriga.
“All the analysis done so far has turned up no sign of the cold wallets they’ve been talking about,” Max Galka, cofounder and CEO of Elementus, an analytics firm told the media.
“Cold wallets” is crypto lingo for virtual storage where companies often hold the majority of their funds. Because they’re held offline, cold wallets are deemed more secure than so-called hot wallets, which are maintained on servers and generally handle day-to-day transactions, much like the cash sitting at a bank teller’s desk.
Instead, the company appears to have been transferring money from its hot wallets to other crypto exchanges, Galka said.
The company currently has only $375,000 in cash and owes to more than 100,000 customers a total of approximately $250 million, $180 million of which is in cryptocurrency, according to court documents.
When Galka analyzed Quadriga’s history of transactions in Ethereum, he found no evidence of cold wallets holding millions.
There are about 60 million accounts on the Ethereum blockchain and only around 20 that hold the balance that Quadriga claims to have. But none of them seem to belong to the exchange, Galka said.
“We have looked at every single address on the blockchain that Quadriga transacted with — it’s hundreds of thousands of addresses — and, in our opinion, none of them even remotely fits the profile of a cold wallet.”
Software Engineer Loses Life Savings in Quadriga Imbroglio
Tong Zou wasn’t a stereotypical crypto bro bent on accumulating flashy trophies such as Lamborghinis when he deposited his life savings into Quadriga CX’s digital exchange.
The 30-year-old software engineer, who’d been working in California for seven years, just wanted to save a few bucks on transfer fees after deciding to move to Vancouver. It proved to be a C$560,000 ($422,000) mistake.
“It’s all my savings, so I’m just living on what little I have left and trying to start over,” Zou said in a phone interview Friday from Vancouver, where he has been living out of an AirBnB for the past month. “It pretty much took everything away from me.”
Zou is one of Quadriga’s 115,000 clients who are out of luck after the sudden death of the firm’s founder left C$190 million in cryptocurrencies protected by his passwords unretrievable. The exchange has halted operations and was granted protection from creditors on Feb. 5 in Nova Scotia Supreme Court in Halifax.
Zou considers himself “one of the largest affected individual users” — according to an affidavit he filed as part of the court proceedings. He bought Bitcoin in the U.S. and transferred it over to Quadriga and immediately sold it for Canadian dollars, which was supposed to be deposited into his Canadian bank account. That was in October. He’s still waiting.
“I wasn’t using it for trading — I just wanted to move my money over to my Canadian bank account,” Zou said in the interview. “What I didn’t know was that my withdrawal would be pending or incomplete and it never got deposited in my bank account. I’ve been waiting four months so far.”
Zou said week after week he would contact the exchange, asking when the transaction would be complete and he could retrieve his money.
“They kept telling me it was because of the CIBC lawsuit at the time and every time I emailed them, that’s what they told me. They said just wait another two weeks, just wait another two weeks, you’ll get your money,” he said.
CIBC took legal action and froze almost $26 million of Quadriga’s funds in early 2018. The bank alleged it was unable to determine who the money belonged to and began investigating.
“A lot of other people are in the same situation as me,” he said.
Zou has been coordinating with other affected users online through the Telegram messaging app, and turned to Bennett Jones LLP and McInnes Cooper to represent him and others in Quadriga’s creditor protection proceedings in Halifax.
Jesse Powell, CEO of another exchange called KrakenFX, tweeted that Quadriga had “thousands” of wallets on his exchange and tagged RCMP, saying to contact him.
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
— Jesse Powell (@jespow) February 3, 2019
Let’s pray the system will improve as the world really needed an alternative currency very badly. Let’s hope to see the emergence of real cryto money that everyone can trust and better still, can be used on all transactions on daily basis.
Soldier on, Mr. Crypto.