The QuadrigaCX Conundrum

Gerald Cotten, aged 30, died in India recently at the very start of his honeymoon. It was sudden and unexpected. From the time he got sick, he was dead within 24 hours. His wife and he were also planning to open an orphanage while they were there, but he died before he could do so.

If I told you that, and you did not know who Gerald Cotten was, you'd think that it was a really sad story. The poor guy was so young (only 30), a nice guy (opening an orphanage), and how terrible for his wife having to deal with the death of her husband on their honeymoon overseas. Imagine how difficult that is.

But Gerald Cotten is not just anyone. He was the CEO of the largest Canadian cryptocurrency trading company, QuadrigaCX. And when he died, he was the only person with the password to $190 million in crypto assets. Crypto wallets can't be hacked if you don't know the password. It is probably going to be impossible for anyone to recover that money unless he wrote the password down somewhere.

The internet is abuzz with amateur sleuths trying to find out what happened. Is he really dead? Was there every really any money there? Did his wife help him with this scam? It's all very complicated.

The tricky thing is this. I think he's really dead. I mean, you can apparently get a fake death certificate in India. But how do you fake being admitted to a expensive (and top quality) hospital, going into cardiac arrest three times, and dying. You can't fake that. And his body was shipped back to Canada. And he was buried. He didn't just “disappear and assumed dead”. He died. His body is in a known location.

So back to the original statement. This must be tough on his wife. I feel bad for her, having her husband die so suddenly on their honeymoon. That's so awful. Let's not forget this part.

The main problem she's going to face now is this mess that he left her. And what a mess it is.

First, at least $190 million in customer funds are missing. It's not like people can see the funds and just don't have access to them. There's not really any evidence of where they are. I mean, there's no public evidence they exist.

The auditors have not released any information, and so perhaps they do know where they are and can see them. There's a good possibility that they can see the coins on the blockchain but just can't access them since they haven't told the court the wallets are empty.

He operated his business in such a sloppy fashion. The ultimate sin. The ultimate thing that will tarnish his image and perhaps subject his widow to years and years of legal pain, is that he put himself as the linchpin on which the whole business would fail in a spectacular way should something happen to him.

The loss of a password results in the loss of $190 million in invested assets.

What if he was hit by a car while going to Tim Hortons? Or just couldn't remember the password? I forget things all the time!

I mean, it's true that my own business would fail eventually should something happen to me. But I don't have anyone other than my wife depending on me. I'm not holding people's life savings for safe keeping.

I saw an article about one guy who decided to move to Canada from the U.S. He sold his house, and transferred $422,000 to himself using Bitcoin (and QuadrigaCX). He wasn't trading cryptocurrency. He was just using it as a temporary way to move a lot of money around the world while he moved. It's one thing to lose $2,000 that you have sitting at some random exchange. But $422K is real money no matter who you are.

Another interesting wrinkle, in reading the court filings, is that Canadian banks basically refused to work with them for years. QuadrigaCX didn't have any corporate bank accounts. The founder was using his personal bank account to transfer company money. And that led to some complex arrangements with other companies to get money in and out. This is part of the mess.

Imagine if they could operate like a normal company. Some things would be so much clearer.

Apparently, there is $30 million of the company's money currently in uncashed bank drafts. Banks refuse to deposit them. So the money just sits as a piece of paper, waiting for someone to cash it.

As the company is insolvent at the moment, $30 million in bank drafts will mean that investors at least get 10% of their money back. The guy who deposited $422,000 is getting back $42,000 or so, at least. So that's one good news.

But don't forget that the company has to pay it's debts back (if any) and lawyers, accountants, and others in bankruptcy will get fees paid before any other creditors do.

I can't imagine operating a financial business and not having access to the banking system.

Besides the speculation that he faked his own death, the other speculation is that the money doesn't exist. There is no $190 million in some cold wallet. It had been transferred away or lost in some gamble. That might be possible too. This happens so much in crypto.

Lastly, unfortunately, his widow will be under some intense scrutiny. She had been buying up houses over the past couple of years using several different names and her husband was known to have an expensive boat and plane that his widow is now selling. Where this money came from is worthy of some investigation.

I don't have any news to share on the situation that hasn't already been shared. But I think this speculation that he ran off with the money is extremely unlikely. He's dead. He just ran his business in a terrible fashion.

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