QuadrigaCX Scandal: Inside the Shady Transfers and Deception of Gerald Cotten

The Shady Business of QuadrigaCX

QuadrigaCX, once a prominent Canadian cryptocurrency exchange, is now the subject of scrutiny following revelations from Ernst & Young (EY). The court monitor’s report raises alarm bells regarding unethical practices that seem straight out of a bad crime novel — except this is all too real for the unfortunate investors caught in the whirlwind.

Mismanagement and Dark Secrets

At the heart of the debacle is the late co-founder Gerald Cotten, who apparently ran the operation with the finesse and oversight of a toddler on a sugar rush. EY’s report indicates that not only was most of the exchange controlled by Cotten alone, but there were also significant lapses in financial reporting and operational controls.

• Single Point of Failure: With Cotten at the helm, there was no one to check his decisions. That’s like giving a kid the keys to a candy store without any adult supervision.
• Missing Internal Controls: QuadrigaCX had little to no segregation between its duties or assets. It’s as if they mixed up the Monopoly money with their real cash. No surprise things went south!

The Great Fund Disappearing Act

In a shocking twist, it appears that Cotten was not just trading but using user funds as collateral for his personal trading activities on competitor exchanges. This alarming revelation suggests that user deposits were recurrently funneled out of Quadriga’s wallets into thin air—or rather, to Cotten’s personal accounts.

“User Cryptocurrency was traded on these exchanges and […] used as security for a margin trading account established by Mr. Cotten.” – Ernst & Young

Fictional Accounts and Inflated Figures

As if things couldn’t get worse, Cotten allegedly fabricated multiple accounts under different aliases. These persona brought in unsupported deposits that inflated the exchange’s revenue figures, skewing any semblance of honesty in its operations.

This strategy resulted in:

• Artificial trades with existing users.
• Withdrawal of user funds under the guise of profit-making.

The Aftermath: Users Left in the Lurch

With around 76,000 users left holding the bag, QuadrigaCX owes a staggering total of CD$214.6 million (roughly $162.2 million) in fiat and cryptocurrency. To add insult to injury, around 9,450 bitcoin and thousands of ether and litecoin vanished from the most wanted wallets.

The Unaccounted Millions

As EY continues their investigation, they report that a significant portion of the cryptocurrency transferred remains unaccounted for. A whopping CD$80 million in BTC has mysteriously disappeared, having been sold via an unnamed third-party exchange.

In the wake of Cotten’s untimely death and the subsequent chaos, QuadrigaCX’s actual financial health may never be fully understood. Unfortunately, for many users, this saga is the grim reality of trusting with one hand while being robbed with the other.