The Ontario Securities Commission, which investigated alongside an RCMP investigation, concluded that Gerald Cotten, who died during a trip to India in 2018, had himself committed the fraud.
“Staff have determined that Quadriga collapsed due to Cotten fraud,” said the CSO, adding that it had opened accounts under pseudonyms and credited itself with fictitious currencies and balances cryptographic assets, which he then traded with unsuspecting Quadriga customers.
When he died, the founder of the cryptocurrency platform, 30, was also the only one to have access to the keys or passwords of the digital wallets of more than 100,000 investors. These wallets were supposed to hold their crypto assets, and investors have lobbied since Cotten’s death to find a way to access their investments.
But what the OSC revealed on Thursday was that their money had largely disappeared two years before Cotten’s death – lost due to unsuccessful transactions in cryptocurrencies, including Bitcoin and Ether or taken by Cotten to finance a “sumptuous” lifestyle.
In 2016, Quadriga turned into what was more or less a Ponzi scheme, according to the regulator, with new investor funds used to pay old investors who had made withdrawal requests.
“Cotten suffered real losses when the price of crypto assets changed, creating a deficit of available assets to satisfy customer withdrawals,” said the OSC, adding that it “covered this deficit with deposits from ‘other customers – actually, using a Ponzi scheme. ”
The OSC calculated that the majority of the $ 169 million in lost customer losses – approximately $ 115 million – came from Cotten’s fraudulent transactions.
An additional $ 28 million was lost as a result of trading on other platforms.
“Staff also determined that Cotten had diverted millions of client assets to finance their lavish lifestyle,” the regulator said on Thursday.
After Cotten’s death, the Quadriga affair became squalid, with investors wondering if he was really dead and seeking last year to have his body exhumed.
His widow, Jennifer Robinson, said in court documents that she had received threats.
Quadriga filed for creditor protection in February 2019 and filed for bankruptcy a few months later. Ernst & Young is the trustee in bankruptcy.
The CSO report said that Quadriga was “already in crisis before Cotten’s death, and would likely have collapsed even if Cotten had lived.”
When he died in December 2018, the crypto platform owed its customers about $ 215 million, but had virtually no assets to cover these liabilities.
“In November 2016, Cotten had injected so many bogus assets into the platform that its possible insolvency was almost assured,” concluded the regulator.
Ernst & Young, the trustee in bankruptcy, was able to recover $ 46 million in assets payable to clients, the report said.
Cotten having died and the business bankrupt, the OSC determined that it was not “in the public interest” to take coercive action in the matter. But the regulator still wanted to tell investors and the public what had happened.
“In this case, our mandate is best fulfilled by publicly sharing the findings of law enforcement personnel,” said the regulator.
“Although public publication of such a report is seldom done, we believe that making this review widely available can help prevent this from happening again.”
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