The Canadian cryptocurrency exchange QuadrigaCX appears to have been playing with fire long before it collapsed – and took $134 million with it – earlier this year.
According to the latest report from administrators, EY, QuadrigaCX had been operating a fraudulent cryptocurrency exchange. It failed to follow basic business processes, maintain financial accounts, and manage user and company funds appropriately.
Adding insult to injury, EY identified that Cotten exploited his position as CEO and used alias accounts, on his own platform, to make fake deposits and trades. This resulted in “inflated revenue figures, artificial trades with [real] users,” and let Cotten withdraw users’ cryptocurrency to personal accounts.
What’s more, EY say that QuadrigaCX did not maintain users’ cryptocurrency exclusively in its own hot or cold wallets. Instead, it transferred “significant volumes” off platform to accounts on competitor exchanges controlled by Cotten.
Long road to recovery
Court appointed monitors initially recovered a total of CAD$31.5 million (USD$10.2 million) in fiat. Since filing for bankruptcy monitors have found a further CAD$500,000 (USD$380,000). The monitor is also in control of CAD$1 million (USD$756,000) worth of cryptocurrency.
While this might sound like administrators are making good headway to recovering user funds, they still have a long way to go.
QuadrigaCX collapsed, earlier this year, after its CEO was reported to have passed away. Unfortunately, he was the only QuadrigaCX employee that could access company wallets, private keys, and passwords. As a result, over $134 million worth of user funds were lost.
Earlier this month, the Federal Bureau of Investigation (FBI) stepped up its probe into the defunct exchange. It asked victims to come forward and answer a few questions to assist in its ongoing investigation.
Indeed, it seems that QuadrigaCX was doomed long before it collapsed and transitioned into bankruptcy. The story is still unfolding.