Interested parties attend Nova Scotia Supreme Court as Canada’s largest cryptocurrency exchange seeks creditor protection in the wake of the sudden death of its founder and chief executive in December and missing cryptocurrency worth roughly $190-million, in Halifax on Tuesday, Feb. 5, 2019. Vancouver-based Quadriga says it filed an application for creditor protection on Jan. 31. (Andrew Vaughan/The Canadian Press)

Interested parties attend Nova Scotia Supreme Court as Canada’s largest cryptocurrency exchange seeks creditor protection in the wake of the sudden death of its founder and chief executive in December and missing cryptocurrency worth roughly $190-million, in Halifax on Tuesday, Feb. 5, 2019. Vancouver-based Quadriga says it filed an application for creditor protection on Jan. 31. (Andrew Vaughan/The Canadian Press)

B.C. cryptocurrency exchange gets court orders amid hunt for $180M in assets

Gerald Cotten, CEO and sole director of the trading platform QuadrigaCX, was travelling in India on Dec. 9 when he died suddenly

Canada’s largest cryptocurrency exchange was granted protection from its creditors Tuesday as it deals with the fallout from its founder’s death and the virtual company’s inability to gain access to $180 million in digital assets believed to be locked in his laptop.

Gerald Cotten, CEO and sole director of the trading platform QuadrigaCX, was travelling in India on Dec. 9 when he died suddenly from complications linked to Crohn’s disease, court documents say.

He was 30 years old.

His wife, Jennifer Robertson, has filed an affidavit with Nova Scotia Supreme Court saying Cotten was the only person with access to the laptop. She says she has searched their home in Fall River, N.S., where he conducted most of his business, and was unable to find any passwords or business records.

QuadrigaCX owes about 115,000 of its users $70 million in cash and $180 million in Bitcoins and other cryptocurrencies — based on market prices in December.

On Tuesday, Justice Michael Wood also granted QuadrigaCX a 30-day stay of proceedings, which prevents any lawsuits from being filed against the insolvent company.

QuadrigaCX lawyer Maurice Chiasson said the orders were necessary to bring stability to a chaotic case punctuated by “threats, veiled and otherwise” of legal action.

“This is an attempt to call a time-out,” he told the court, adding that the decision by QuadrigaCX’s newly appointed directors to shut down the site on Jan. 28 caused a “fair amount of panic.”

Meanwhile, a spokeswoman with Nova Scotia RCMP confirmed Tuesday they are assisting with an investigation into QuadrigaCX.

Cpl. Jennifer Clarke said the investigation is being led by the RCMP’s Toronto West detachment.

In his submission to the court, Chiasson said dealing with the unregulated and secretive world of cryptocurrency trading has proven difficult for his team of lawyers.

At one point, he described the challenge of tracking down third-party payment companies that may have digital assets belonging to QuadrigaCX users.

“We’re still struggling to find out who they are,” he said.

“We still think … there is up to $180 million in cryptocurrency floating around … There’s a lot of moving parts to this.”

The company could have access to about $30 million in bank drafts, but regular financial institutions have made it clear they are nervous about handling those funds, Chiasson told the court.

On the weekend, Chiasson said his firm learned that a so-called black bank may be holding $11 million in cryptocurrency owed to QuadrigaCX’s creditors.

Chiasson also suggested that reaching the 115,000 affected creditors could prove to be another challenge because those trading in cryptocurrencies typically prefer to remain anonymous and often get their information from anonymous online chat rooms.

“They don’t immediately know what is real and what is not,” he said.

As for Cotten’s computer, he said, significant resources have been employed to gain access to the machine’s encrypted files.

“There’s been some limited success,” he said, adding that the computer has been examined by a retired RCMP officer with expertise in encryption technology.

Lawyer Raj Sahni, who represents 78 creditors who are owed more than $100 million, marvelled at the novel nature of the case.

“This is nothing like anything we’ve seen before,” he told the court.

Sahni pointed to misinformation on chat rooms and the fact that the court-appointed monitor, Ernst and Young, has no idea where most of the money is.

As monitor, the company will oversee the search for the missing assets and determine if the business can be sold.

Ernst and Young later agreed to post notices of the court action on Reddit.com, an online community where the QuadrigaCX debacle is the subject of much discussion and more than a few rumours.

At one point, a younger member of the Ernst and Young team was called upon to explain to the court how Reddit works.

In her affidavit, Robertson complained that some of the online chatter raised questions about “whether (Cotten) is really dead.” As well, she said she has received online death threats.

George Kinsman, an Ernst and Young spokesman, said the monitor has plenty of work to do.

“There are a lot of affected parties that are involved, there’s large dollar amounts … but I think getting the order is going to be Step 1 in a meaningful process,” he said outside the court.

“There will be transparency.”

Kinsman said specialists will be tasked with ensuring Cotten’s laptop is secure, and he confirmed that it will remain in a Toronto office.

The QuadrigaCX platform, which is based on blockchain technology, was launched by Cotten in December 2013.

Before the platform was shut down, it had 363,000 registered users.

QuadrigaCX and its affiliated companies are registered in British Columbia, but it has no offices, no bank accounts and no employees, aside from a handful of contractors.

“Most of the business of the companies was being conducted by Gerry wherever he and his computer were located,” Robertson said in her affidavit.

Court documents show that QuadrigaCX had been facing liquidity issues over the past year but a major issue arose in January 2018 when CIBC froze roughly $25.7 million of its funds held in the account of a third-party payment processor.

That money has been turned over to the processor, Costodian, but they haven’t deposited the bank drafts, court documents say.

READ MORE: $2.5M lot in upscale B.C neighbourhood seeks Bitcoin buyer

Cryptocurrencies, which are not regulated or subject to industry oversight, are typically stored digitally on a computer server connected to the internet, which is known as a hot wallet.

The digital assets can also be stored on a physical device, such as a USB flash drive, which is kept offline to prevent hacking.

In her affidavit, Robertson said QuadrigaCX kept very little cryptocurrency in hot wallets.

After Cotten died, QuadrigaCX employees tried to gain access to the company’s cold wallets, but they either failed to get in or found the wallets held very little cryptocurrency.

— With files from Keith Doucette in Halifax

Michael MacDonald, The Canadian Press


Like us on Facebook and follow us on Twitter.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

A member of the Okanagan Mission Secondary School community has tested positive for COVID-19. (Google Maps)
Another COVID-19 case confirmed at Okanagan Mission Secondary school

Interior Health has confirmed a member of the school community tested positive for the virus

A concept rendering of the proposed Costco at the corner of Baron, Leckie and Springfield roads. (WSP Global)
Contentious Kelowna Costco relocation moved to public hearing

Costco looking to move less than a kilometre away to build a larger store with more parking, gas bar

A man wearing a face mask to help curb the spread of COVID-19 walks in downtown Vancouver, B.C., Sunday, Nov. 22, 2020. The use of masks is mandatory in indoor public and retail spaces in the province. THE CANADIAN PRESS/Darryl Dyck
104 new COVID-19 cases in Interior Health

IH is reporting the new numbers since Friday, Nov. 20

Vernon-North Okanagan RCMP Const. Samantha McClellan (left) and Staff-Sgt. Jeff Faulkner (right) accept a bag of dog treats from Vernon’s Marco Lavigne at the Cram The Cruiser fundraiser event in support of the Pet Soup Kitchen Tuesday, July 27, at Vernon’s Healthy Spot Pet Nutrition and Siupply. (Roger Knox - Morning Star)
RCMP to host annual ‘Stuff the Cruiser’ event safely amid COVID-19

The event will be held from 10 a.m. to 4 p.m. on Saturday, Nov. 28 at Kelowna RCMP Detachment at 1190 Richter Avenue

People wearing face masks to help curb the spread of COVID-19 cross a street in downtown Vancouver, on Sunday, November 22, 2020. The use of masks is mandatory in indoor public and retail spaces in the province. THE CANADIAN PRESS/Darryl Dyck
B.C. reports 17 COVID deaths, 1,933 new cases as hospitalizations surge over the weekend

There are 277 people in hospital, of whom 59 are in ICU or critical care

An aerial shot of Cedar Valley Lodge this past August, LNG Canada’s newest accommodation for workers at the project site in Kitimat. This is where several employees are isolating after a COVID-19 outbreak was declared last Thursday (Nov. 19). (Photo courtesy of LNG Canada)
Forty-one positive COVID-19 cases associated with the LNG Canada site outbreak in Kitimat

Thirty-four of the 41 cases remain active, according to Northern Health

7-year-old Mackenzie Hodge from Penticton sent a hand-written letter to premiere John Horgan asking if she’d be able to see her elf, Ralph under the new coronavirus restrictions. (John Horgan / Twitter)
Elf on the shelf an acceptable house guest B.C. premier tells Okanagan girl

A 7-year-old from Penticton penned a letter asking if she’d be allowed to see her elf this year

Workers arrive at the Lynn Valley Care Centre seniors home, in North Vancouver, B.C., on Saturday, March 14, 2020. It was the site of Canada’s first COVID-19 outbreak in a long-term care facility. THE CANADIAN PRESS/Darryl Dyck
Rapid tests ‘not a panacea’ for care homes, Dr. Bonnie Henry says

B.C. lacks capacity for daily tests of thousands of workers

(Delta Police Department photo)
Cannabis edibles found in Halloween bag lead B.C. police to illegal lab

Delta police arrested a man and a woman while executing a warrant at a residential property Nov. 20

RCMP pictured at a motor vehicle incident during snowy conditions. (Phil McLachlan - Black Press Media)
B&E, stolen car in Vernon lands Whitehorse man in cuffs

Suspect takes off on foot in attempts to evade arrest

Penticton Search and Rescue along with the Penticton Fire Department located and airlifted an injured 21-year-old female hiker Sunday, Nov. 22, 2020. (Mike Biden photo)
Penticton search and rescue airlift injured hiker off mountain

There has been an unprecedented amount of calls for search and rescue this year

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

Salmon Arm RCMP nabbed two Calgary suspects in an allegedly stolen vehicle on Highway 1 on Nov. 22, 2020. (File photo)
Salmon Arm RCMP use spike belts on Highway 1 to nab Calgary suspects

Arrests occur after Revelstoke RCMP clock allegedly stolen vehicle going faster than 160 km/h

Most Read