Trustees from Ernst and Young Inc. (EYI) have submitted a preliminary report assessing the assets remaining at QuadrigaCX, a Canadian cryptocurrency exchange that lost access to an estimated $240 million CAD in exchange funds last winter after the untimely death of CEO and sole Director, Gerald Cotten.
All told, the trustee’s report finds that Quadriga and associated companies’ liabilities outsize assets by a margin of more almost 10-to-one.
This means there may be little left for the 76,319 “unsecured creditors” (QuadrigaCX crypto trading customers) owed an estimated $214,618,928 CAD by the exchange.
Gerald Cotten died December 9th from complications of Crohn’s disease while honeymooning in India and reportedly working to establish an orphanage.
Remaining QuadrigaCX staff did not publicly disclose Cotten’s death for another month, and the exchange continued to host trades and onboard deposits until the end of January 2019.
Remaining Quadriga staff and Robertson have since claimed that Gerald Cotten died without giving anyone else password access to $240 million CAD in cryptocurrencies locked in “hardware wallets” (offline storage devices) he controlled.
On February 5, 2019, Cotten’s widow, Jennifer Robertson filed for and was granted protection from creditors by the Nova Scotia Supreme Court.
Bankruptcy orders for Quadriga were issued by the presiding judge April 11. This has reportedly cleared the way for affected users to pursue civil claims.
Quadriga is a subsidiary of Whiteside, itself a subsidiary of Fintech. All three companies were incorporated by Cotten between 2013 and 2014.
Fintech and Whiteside appear to have functioned as little more than umbrellas for Quadriga CX, Cotten’s once-popular cryptocurrency trading platform, the trustee’s preliminary report claims:
“Fintech and Whiteside appear not to have carried out any business other than to hold the shares of the other entities…”
Until 2016, Fintech was a reporting issuer in British Columbia, but that year the company was ordered by the BC Securities Commission to cease trading Fintech shares.
According to the trustees, Gerald Cotten’s estate still owns 41% of Fintech’s shares. The value of those shares is not stated in the report.
The trustee also claims that Cotten controlled the majority of all the companies’ affairs as founder, CEO and sole Director.
Cotten also, “…oversaw …operations from his personal residence in Nova Scotia… (and) None of the Companies maintained a physical office space.”
The trustee qualifies at the beginning of the report that it, “…has relied upon unaudited financial information…The Trustee has not audited, reviewed or otherwise attempted to verify the accuracy or completeness of the information in a manner that would wholly or partially comply with Generally Accepted Assurance Standards (“GAAS”).”
It also says that records are lacking and have been hard to obtain due to poor cooperation from third party payment processors (TPPPs) and other crypto exchanges Quadriga did business with:
“The investigation has proved to be a challenging process due to the lack of individual sharing institutional knowledge of the operations, the limited books and records available to review, no Company controlled bank accounts, Quadriga’s usage and reliance on multiple TPPP’s to facilitate its fiat treasury functions, limited cooperation from TPPP’s to assist the Monitor with its investigation and limited assistance from third party crypto currency exchanges who received crypto currency transfers initiated by Mr. Cotten.”
The trustee notes, however, that the presiding Judge has assisted with compelling information from the third parties:
“EYI is however making progress with the investigation and recent orders granted by the Courtimposing obligations on certain named TPPP’s and exchanges will assist.”
From the records so far obtained, it appears that the Quadriga estate possesses assets of almost $29 million CAD and liabilities of almost $216 million CAD, mostly compromised of the $215 million CAD owed to “unsecured creditors” (affected users) and ~$778 000 CAD owed to a “contingent creditor” (a costodian) claiming Quadriga owes it for processing fees. “The Trustee will work with Costodian’s counsel…”
Quadriga Fintech Solutions has $254 180 CAD cash on hand and shares the liabilities for affected users.
The trustee says it will file a claim on the company’s $254 180 CAD cash on hand on behalf of Quadriga exchange users:
“Ernst & Young Inc. acting in its capacity as Trustee in Bankruptcy of Quadriga intends to file anunsecured claim on behalf of the Quadriga Estate for the value of the cash on hand on the basis that the funds appear to have originated as a result of deposits by Quadriga customers (net of withdrawals by customers) and therefore belong to the Quadriga Estate.”
