The Ontario Securities Commission (OSC) in Canada has publicly released a report around their findings into the Quadriga CX exchange investigation.
The primary finding of the investigation is that the exchange operated as an elaborate ponzi scheme.
That’s the key finding of an Ontario Securities Commission (OSC) report made public Thursday.
The report reveals that the exchange, which went bankrupt a few months after CEO Gerald Cotten was reported to have died in India, “was an old-fashioned fraud wrapped in modern technology.”
The investigations were allegedly concluded in April 2020, but released to the public this week, and allege that CEO Cotten traded against his own customers, set up fake accounts on other exchanges to trade using his customers’ funds and failed to maintain records. These allegations are the same as those made by Ernst and Young (EY), court-appointed auditors.
To date, the company has recovered approximately C$46 million.
“In 2016, Cotten became the only person in control of the exchange’s assets,” the report said.
It continued: “Evidence shows that Cotten regularly moved clients’ crypto assets off the Quadriga platform and into accounts he had opened on other cryptoasset trading platforms. Cotten told a Quadriga contractor that a certain wallet address was a Quadriga cold storage address, when it was actually a deposit address for Cotten’s account at another trading platform.”
While it has been speculated that the missing customer funds – close to $200 million – were lost because Cotten was the only individual to control the exchange’s cold wallets, the OSC report claims that in reality, Cotten lost the funds through “blatant fraudulent conduct.” The regulator estimated this conduct to total C$169 million.
“The bulk of the missing funds – approximately $115 million – arose from Cotten’s fraudulent trading on his own platform. Cotten opened Quadriga accounts under aliases and credited himself with fictitious cryptocurrency balances which he traded with unsuspecting Quadriga clients. He sustained real losses when the price of cryptoassets changed, thereby creating a shortfall in assets to satisfy client withdrawals,” the report says.
The report was compiled by interviewing former Quadriga contractors, advisers, clients as well as Jennifer Robertson, Cotten’s alleged widow. Quadriga co-founder Michael Patryn did not respond to the media’s requests for comment, though the OSC said a majority of the lost funds were deposited after Patryn’s departure from the exchange in 2016.
The report concludes that “what happened with Quadriga was an extreme example, and not necessarily representative of the broader cryptoasset trading platform industry. However, these events serve to highlight the risks that can arise in relation to cryptoasset trading platforms, particularly those that are not registered.”
The remarkable thing here is that this was one of Canada’s leading exchanges. If a malicious individual can elaborately wrap a ponzi scheme into an apparently impressive crypto exchange, how much more are other much less impressive offerings and crypto products to be taken with cynicism? And just how much do events like this tarnish Satoshi’s vision?
