Quadriga Was a Ponzi Scheme, Ontario Securities Regulator Says

QuadrigaCX operated like a Ponzi scheme.

That’s the important thing discovering of an Ontario Securities Fee (OSC) report made public Thursday.

OSC, one in every of Canada’s provincial securities regulators, mentioned the now-defunct alternate, which went into chapter 11 a couple of months after founder and CEO Gerald Cotten was reported to have died in India, “was an old school fraud wrapped in fashionable know-how.”

The scathing report, dated April 2020 however launched publicly on Thursday, took goal at Cotten’s practices, together with allegations that he traded in opposition to his personal prospects, arrange pretend accounts on different exchanges to commerce utilizing his prospects’ funds and failed to keep up information. These allegations have been made previously by Ernst and Younger (EY), a court-appointed auditor tasked with recovering buyer funds following the alternate’s February 2019 collapse.

The corporate has recovered about C$46 million thus far.

“In 2016 he turned the one particular person in command of these belongings. The proof reveals that Cotten usually moved purchasers’ crypto belongings off the Quadriga platform and into accounts he had opened on different crypto asset buying and selling platforms,” the report mentioned. “At one level, Cotten informed a Quadriga contractor {that a} sure pockets handle was a Quadriga chilly storage handle, when it was actually a deposit handle for Cotten’s account at one other crypto asset buying and selling platform.”

Whereas it has been speculated that the lacking buyer funds – near $200 million – have been misplaced as a result of Cotten was the one particular person to manage his alternate’s crypto wallets, OSC mentioned in its report that in actuality, Cotten misplaced the funds by means of “fraudulent conduct.” The regulator totaled this at about C$169 million.

“The majority of the asset shortfall—roughly $115 million—arose from Cotten’s fraudulent buying and selling on the Quadriga platform. Cotten opened Quadriga accounts underneath aliases and credited himself with fictitious foreign money and crypto asset balances which he traded with unsuspecting Quadriga purchasers. He sustained actual losses when the value of crypto belongings modified, thereby making a shortfall in belongings to fulfill shopper withdrawals,” the report mentioned.

The OSC put the report collectively by interviewing former Quadriga contractors, advisors, purchasers and his widow, Jennifer Robertson. Quadriga co-founder Michael Patryn didn’t reply to a request for remark, although OSC mentioned a majority of the misplaced funds have been deposited after Patryn’s departure from the alternate in 2016.

Robertson didn’t instantly return a request for remark despatched by means of her lawyer.

“What occurred with Quadriga was an excessive instance, and never essentially consultant of the broader crypto asset buying and selling platform business. Nonetheless, these occasions serve to spotlight for traders the dangers that may come up in relation to crypto asset buying and selling platforms, significantly these that aren’t registered,” the report mentioned in its conclusion.