The Ontario Securities Commission (OSC) said the QuadrigaCX cryptocurrency exchange, which closed last year, was a pyramid and its founder a fraudster.
The Canadian provincial regulator claims that the QuadrigaCX cryptocurrency exchange, which went bankrupt shortly after the death of its founder and CEO Gerald Cotten in India, was "an old-fashioned scam made using modern technology."
In a report dated April 2020, but released only this week, Cotten is accused of trading against his clients, creating accounts on other exchanges for trading using his clients' funds, and did not keep the necessary reports.
Earlier, similar charges were brought by Ernst & Young (EY) company appointed by the court as the trustee of the exchange, which was entrusted with the task of returning funds to the site’s customers. The OSC report says:
“In 2016, he [Gerald Cotten] became the only person controlling the assets of the exchange. Facts indicate that Cotten regularly transferred client crypto assets from the QuadrigaCX platform to accounts opened on other platforms for trading. At some point, Cotten told the QuadrigaCX contractor that the specific wallet address was the address of the QuadrigaCX cold wallet, but in reality it was Cotten’s account on another cryptocurrency exchange. ”
There is an assumption that the missing funds of customers were lost because Cotten was the only person who controlled cryptocurrencies and after his death there was no access to them. However, OSC reported that Cotten actually lost them as a result of "fraudulent behavior." According to the regulator, now customers' losses are estimated at 169 million Canadian dollars.
“Most of the asset shortfall — about $ 115 million — came about as a result of Cotten’s fraudulent trading on QuadrigaCX. Cotten opened accounts on QuadrigaCX under pseudonyms and credited himself with fictitious currencies and crypto assets, which he traded with unsuspecting QuadrigaCX customers. He suffered real losses when the price of crypto assets changed, which led to a deficit to satisfy client requests for money withdrawal, ”the report says.
OSC drafted a report interviewing former QuadrigaCX contractors, consultants, customers, and Cotten's widow, Jennifer Robertson.
“What happened with QuadrigaCX was a blatant case, and does not necessarily mean that other cryptocurrency platforms can work in a similar way. Nevertheless, these events should emphasize for investors the risks that may arise in connection with the operation of cryptocurrency exchanges, especially not registered with the regulator, ”the report says.
Recall that in May this year, about 17,000 individual claims were filed in connection with the distribution of the remaining assets of QuadrigaCX. The total amount of claims varies from $ 167 million to $ 300 million.
