Ernst & Young Report: Quadriga CX Owes More Than It Owns

EY said that Quadriga has more debts than assets.EY is the court appointed monitor for the case of Quadriga CX. Image from AK Rockefeller | Flickr | CC BY-SA 2.0

The interesting tale involving that Canada-based crypto exchange company, Quadriga CX, continues after the government-nominated monitor Ernst and Young (EY) has published a report on the assets and liabilities of the company saying that it owes much more money than it actually has.

According to the recent report by the monitor, which was dated May 1st but only published a few days ago, there are three different sources of assets and independent entities that the Quadriga CX’s fund are connected – Quadriga Fintech Solutions Corp., Whiteside Capital Corporation and 0984750 B.C. Ltd. The three companies are each presented as its bankrupt firm, which means each of the company has its list of assets and liability, notwithstanding any form of overlap.

The data produced by EY as of April 12th shows that Quadriga Fintech Solutions had CAD 254,180 (USD 189,345) in total assets, but the firm owes a total of CAD 214,873,113 (USD 160,051,461). In Quadriga Fintech Solutions alone, the company has a total deficit of $214,618,933 CAD ($159,862,116 USD).

While some may hope that there are still two other business entities that could cover up the deficit, one is mistaken as the scenario does not go far from Quadriga Fintech Solutions. Whiteside Capital corporations has no assets at all but owed $214,618,937 CAD ($159,875,011 USD) and 0984750 B.C. Ltd had $28,649,542 CAD ($21,343,192 USD) and owed $215,697,147 CAD ($160,688,982 USD).

In total, the company has a deficit of $616,285,475 CAD ($459,082,917 USD).

According to George Kinsman, the EY employee acting as the monitor and trustee, the fact that there are numerous estates, creditors, and known assets, causes a “material discrepancy between the reported fiat and cryptocurrency obligations.” He also noted that the careless bookkeeping posed a challenge in pulling together the said numbers.

It can be remembered that Quadriga CX was previously put into the limelight when its founder and Chief Executive Officer (CEO), Gerald Cotten, died last year under mysterious circumstances leaving the company with mountains of debts from its customers. On January, Quadriga entered a civil rehabilitation process when Jennifer Robertson, the widow of Cotten, wrote in an affidavit that the company could not access the cold crypto wallets of Quadriga because Cotten brought all the digital assets with him to the grave.

Nonetheless, the Ernst and Young, through the course of its investigation was still unable to find the said cold wallets listed by Quadriga in a document submitted to them. Interestingly, 103 bitcoin was accidentally transferred from a hot wallet that was allegedly part of the original Quadriga fund.

“A complete and fulsome review of Quadriga’s financial affairs will take considerable time and effort to pursue and may not be possible or cost-effective to complete given the lack of available information, the volume of transactions processed and the number of [third-party payment processors] and cryptocurrency exchanges involved, many of whom to date, have not fully cooperated with the Monitor’s investigation,” said Kinsman as his explanation why EY was not able to locate the funds in the given cold wallet addresses.

Even so, Ernst and Young hold about $500,000 in cryptocurrency recovered from Quadriga’s hot wallets and “various other sources.” EY holds 61 bitcoin, 33 bitcoin cash, 2,661 bitcoin gold, 851 litecoin, and 960 ether. The report did not address what progress, if any, EY has made in locating the exchange’s other missing cryptos.

Whether or not the funds will be returned to the clients of Quadriga remains a question. Initially, through the assistance of Robertson, authorities were able to approximate more than 115,000 claimants; however, only 76,319 claims were validated by Miller Thomson, the court-appointed legal counsel to help the victims in litigation purposes and to recover their lost funds.

Aside from the independent users of the crypto exchange, other claimants go after the funds of Quadriga. According to Robertson, the company also owes a secured creditor CAD 300,000 (USD 223,500), and Costodian, a payment processing company for Quadriga is also claiming CAD 774,214 (USD 557,200) in unpaid processing fees, though this claim is yet to be resolved in court.

While EY is hopeful that they can also go after the assets from Cotten’s estate that he left to his widow, the “preserving parties” of the estate estimate that only CAD 12 million (about USD 9 million) is left, and even if they were able to collect all of it successfully, it would still be insufficient to cover up the deficit.

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