Solving The $200M Problem: QuadrigaCX CEO May Have Kept Funds In Other Crypto Exchanges

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Crypto exchange company, Quadriga CX, have probably stored a significant amount of Ethereum (ETH) in other crypto exchange companies, new evidence revealed.

The company has faced a multimillion-dollar problem after the CEO of the company have died taking the majority of the company’s digital assets – including passwords and encryption keys – to his grave in late 2018.

A report published by crypto research and consulting platform ZeroNonCense on February 28 theorized that the CEO have probably stored a significant amount of cryptocurrency in different crypto wallets in some crypto exchanges. This claim was later corroborated by Kraken CEO Jesse Powell and MyCrypto CEO Taylor Monahan.

More precisely, the author of the report reportedly “believes that there is a very strong possibility” that nearly 650,000 ETH belonging to QuadrigaCX were stored on the Kraken, Bitfinex and Poloniex crypto exchanges during QuadrigaCX’s operations. The report claims that the fact that QuadrigaCX had accounts on all those exchanges is established and proven and that at the time they were sent, the funds were worth over $100 million.

On January 31st, the company filed a court protection motion after almost $200 million of unpaid debts from investors followed the death of its Chief Executive Officer, Gerard Cotten, late 2018 due to complications.

The online startup that handles cryptocurrencies of thousands of its clients cannot retrieve $145 million worth of digital money in Bitcoin, Litecoin, Ether, and other digital tokens. The company also said that the Vancouver-based Quadriga CX could not pay C$ 70 million it owes.

Quadriga CX’s directors posted a notice on the firm’s website on Jan. 31 that it was asking the Nova Scotia court for creditor protection while they address “significant financial issues” affecting their ability to serve customers.

“For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets, and that are required to satisfy customer cryptocurrency balances on deposit, as well as sourcing a financial institution to accept the bank drafts that are to be transferred to us,” the firm wrote.

“Unfortunately, these efforts have not been successful.”

The access to Quadriga CX’s digital ‘wallets’ were lost after the passing of the company’s Chief Executive Officer, Gerald Cotten, who died December 9 in India due to complications from Crohn’s disease at the age of 30.

The CEO has been described as a security conscious person where his digital resources and assets including email passwords, messaging system, and laptop are all encrypted. He took the majority of the responsibility in handling the businesses including handling of funds, banking, and account to safeguard the assets of the company. To avoid being hacked, a usual technique to take over digital companies, Cotten moved “majority” of the digital coins owned by the company to cold storage, said by widow Jennifer Robertson, in a court affidavit.

Although efforts to hack in the encrypted past life of Cotten were made, reports show that success has been very “limited.”

The security measures implemented by Cotten are understandable considering that cryptocurrencies are vulnerable to data breach and hacking. Virtual currency exchanges suffered at least five significant attacks last year. Japan has hosted two of the biggest known crypto hacks: the Mt. Gox debacle of 2014 and the theft of nearly $500 million in digital tokens from Coincheck Inc. last January.

ZeroNonCense explains that — given the affidavit of the founder’s widow Jennifer Robertson that neither she nor other individuals involved with the exchange knew where Cotten stored the crypto assets — it is possible that they were not aware of these storage practices.

Aside from from Kraken and Poloniex, the report opened the possibility of Cotten storing more crypto money in other exchange companies. A report by Big Four audit firm Ernst & Young, which claimed that the exchange’s cold wallets have been empty and unused since April 2018, could be explained by the possibility that the assets are instead stored on those exchanges, ZeroNonCense hints.

If the reports are true, it confirms that QuadrigaCX’s funds are still on the said crypto exchange companies and retrieval of those funds may help the company solve their problem and resume its operation.

However, in February, ZeroNonCence released a report denying the existence of the $190 million Bitcoin (BTC) account that it supposedly lost when Cotten unexpectedly died.

Also in February, news broke that Canadian banks have shown hesitation concerning the management of insolvent cryptocurrency exchange QuadrigaCX’s assets because of money laundering concerns. /apr

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