TL;DR: The ongoing investigation into Canada’s largest cryptocurrency exchange and its loss of tens of millions in users’ funds continues along an ever-stranger path. CoinSpice Executive Editor Hayden Otto goes down the rabbit hole in his latest video (embedded below), and finds murky deals, aliases, and troubling facts that do not add up.
The Truth About QuadrigaCX, Millions Lost, Paper Trail Gets Weird
TRANSCRIPT: Canada’s biggest cryptocurrency exchange, Quadriga CX, has lost control of at least $137 million of its customers’ assets following the sudden death of its founder Gerald Cotten. It has now been revealed that the CEO was the sole bearer of private keys to the exchange’s cold storage wallets. On the 15th of January a statement from his widow, Jennifer Robertson, was published on the exchange website informing customers her husband had died due to complications with Crohn’s disease. This happened on the 9th of December 2018, more than a month earlier, while he was travelling in India and opening an orphanage for children in need.
What’s interesting is that this comes after ongoing troubles with Quadriga’s banking partner, CIBC, who had frozen business accounts worth over $20 million since the start of 2018. During that year, customers had experienced lengthy delays in receiving fiat withdrawals. It turns out the accounts were frozen by CIBC because Jose Reyes, the man in charge of fiat withdrawals at Quadriga, had attempted to transfer $2.3 million to his personal accounts with CIBC in December 2017. This is when the bank froze Quadriga’s account and this transaction. CIBC then attempted to speak with the CEO, Gerald Cotten, but he refused to communicate with the bank. The matter was then seemingly resolved in court, literally a week before Cotten’s death, where the court ordered the funds to be immediately released to Jose Reyes and the Quadriga account unfrozen. Quadriga then stated that all pending customer withdrawals will be fulfilled by the end of the week, but that did not happen.
This now brings us back to where we are today, and as you’d expect the customers of Quadriga are not pleased – with some losing hundreds of thousands of dollars. Many are now speculating on the legitimacy of the claims and digging deeper for more information because the story of Cotten’s death sounds so far-fetched. How is it that one man was entrusted with all the customer funds, totalling nearly $150 million? Well, an article on CoinDesk from 2015 indicates the contrary. In an interview with Gerald Cotten himself, he stated that Quadriga uses multi-signature cold storage to secure the exchange’s Bitcoin holdings, which would make sense for any exchange this size. A 2 of 3 multi-sig configuration would be most useful here, where in the case access to one of the keys are lost, the other 2 can be used to access the cryptocurrency. If Cotten’s keys died with him, why can’t the customer funds be retrieved with the other 2 keys?
Canadian news site, The Global & Mail, reported that “Mr. Cotten was diligent in other areas of his life”. Having signed a will on Nov. 27, less than two weeks before he died, where he appointed Ms. Robertson, who he had just married, as the executor of his estate and outlined the distribution of his assets. These included an airplane, property and two dogs that were allocated $100,000 for their ongoing care.
More red flags were raised since Quadriga failed to disclose their cold storage wallet addresses, making it difficult for the public to track any potential movement of the funds. But that hasn’t stopped people from attempting chainalysis, where one reddit user alleged he managed to track down the Litecoin cold storage and found funds being moved out. This would mean that the private keys are in fact not ‘lost’ and everyone is being played. The OP then goes on to state that “Gerald or someone else with the private keys are literally moving our money out as we speak,” and linked to timestamped Litecoin movements.
Further investigation around the mysterious fate of Cotten, reveal that the orphanage he was helping open does indeed exist. An image of the building first surfaced on reddit 2 days ago, posted by an account named QCX Aaron Maddoff, that is only 9 days old. When questioned in the comments about where the OP got the image, they did not reply. Looking to the website of the organisation Angel House, they are indeed a legitimate operation that has a number of options for people to sponsor homes for children. On their social media, the image posted to reddit could not be found. But there were plenty of images posted over the recent months which showed other sponsored houses that had identical signage. It appears Gerald Cotten had sponsored a 12 child home, with his wife Jennifer Robertson, valued at just over 21 thousand dollars. It is unclear why the he sponsored this home, given that he did not have a history of being philanthropic and also the fact that we’re in Bitcoin’s longest bear market to date. A bear market which has seen many successful crypto businesses struggle to sustain their operations with the current market price, leading to mass layoffs and reductions in spending. There is also no explanation for why he himself travelled to India to assist with the opening of the orphanage, as the website clearly states that locals will build the house, furnish it and then operate it. CEO’s of these large crypto businesses don’t have the time travel around and do charity like this, particular when there is such ongoing turmoil with the business they operate.
Alleged Circumstances of His Death
Now, let’s look at the alleged circumstances of his death.
In the affidavit of Jennifer Robertson; she claims Gerald was diagnosed with Crohns disease at 24 and then his death came suddenly at the age of 30, while in India. Medical data on the disease indicates that it’s very rare to die from Crohns at this age, let alone suddenly without symptoms that have persisted for days prior. The only actual evidence of his death we have is a piece of paper; a statement of death from a funeral home in Halifax Nova Scotia, the city in which the couple live. It is unclear how the funeral home was able to verify the death just 3 days after he died and their website returns no results when searching for an obituary under his name. Without more proof, it has made people inclined to believe that the Quadriga CEO actually performed an exit scam by faking his own death. India is known to have an underworld industry where fake death certificates are provided for as little as $450 USD. A documentary has been filmed on this, where a reporter was easily able to obtain a fake death certificate of his own. Numerous other cases have been documented online, where criminals attempted to fake their death and cremation via this method, either to escape crimes or fraudulently obtain millions through their life insurance policy. When there’s $150M of client funds at stake, the death is something Quadriga need to provide more evidence on if their claims are to be taken seriously.
There’s another piece to this puzzle which some may have overlooked, but multiple reddit users had raised concerns long before any of this recent turmoil came about. Quadriga has another founder by the name of Michael Patryn, one that had supposedly left the company in 2016. There are multiple sources online including videos that confirm he was indeed a co-founder of Quadriga along with Gerald Cotten. In 2014 Patryn was nominated to the Bitcoin Foundation and in his nomination it stated that he had been “working with digital currencies since 2002 in the capacity of financial consultant, market maker and exchanger.”. The key part in this is “2002”; he also mentions on his LinkedIn profile that he has 20 years experience in the field of digital currencies. The profile goes on to say that he’s a founder at Quadriga and then another item of interest is the “Advisor For For New Money Systems” at the Lifeboat Foundation. Taking a look at Patryns profile on the Lifeboat Foundation website, it details his role at Quadriga and then another company called Voleur Financial Services, or VFS for short. This is where shit gets weird.
Voleur financial services links the identity of Michael Patryn to several other aliases including Omar Dhanani, Omar Patryn, and Voleur. Voleur is the alias of Omar Dhanani who was arrested and convicted as a member of ShadowCrew in 2004, an organization founded in 2002 that trafficked stolen credit and identity information primarily using e-gold. A report on Bitmex Research states that Omar Dhanani operated an illegal currency exchange for ShadowCrew. Providing members a money laundering service in digital gold by anonymously converting their illicit cash. In mid 2007, Omar was released from prison and he did not waste time in starting up Midas Gold Exchange in Canada, registered under the name Omar Patryn. This service specialised in processing anonymous purchases and the sale of early digital currencies, particularly Liberty Reserve. In February 2009 the VFS Network launched and served to bring together e-money services like Liberty Reserve and Omar Patryn projects like Midas Gold and others. By the December 2009 there had been many complaints online from Midas Gold users who had not received their withdrawals. Sound familiar? It was around this time that payment processors terminated the Midas Gold accounts due to the overwhelming amount of complaints. There are many more connections and information about the things this guy got up to, but I’ll leave that for viewers to go and investigate themselves. Check the link in the description.
Now we wonder if Michael Patryn had any involvement in the recent happenings of the company QuadrigaCX, given his shady past of criminal activity. DYOR and come to your own conclusions. But what can be said for sure is that once again this serves as a lesson to not store your cryptocurrency on exchanges unless it’s actively being traded. It has happened with Mt.Gox, Quadriga and others, and it will no doubt continue to happen with more exchanges into the future.
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