Death by cryptocurrency: Could $190m be lost forever?
Exit scam, or just plain bad luck? Investors in one of Canada's largest cryptocurrency exchanges will be pondering that very question – and wondering if they will ever see their funds again.
QuadrigaCX, operated by Quadriga Fintech Solutions, is now in the middle of a legal mess after its CEO Gerald Cotten allegedly passed away in December last year – and took the only password to QuadrigaCX with him to his grave.
That password was the sole point of access to the company's cold storage wallets (an offline device for storing cryptocurrency), and now approximately CAD$190 million is now sitting in limbo.
In a tweet dated January 14 2019, Quadriga CX describes Cotten as “A visionary leader who transformed the lives of those around him, he will be greatly missed.
Not only would the company have to get its hands on that cold storage wallet, it would need the password to decrypt it. This, according to QuadrigaCX and media reports, is something that isn't possible – although it is working with the courts to fix the issue.
According to a statement on QuadrigaCX's website, the company is working through legal proceedings to restore the funds and pay out investors.
The statement, dated January 31 2019, reads:
“An application for creditor protection in accordance with the Companies' Creditors Arrangement Act (CCAA) was filed today in the Nova Scotia Supreme Court to allow us the opportunity to address the significant financial issues that have affected our ability to serve our customers. The Court is being asked at a preliminary hearing on Tuesday February 5 to appoint a monitor, Ernst - Young Inc., as an independent third party to oversee these proceedings.
“For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets, and that are required to satisfy customer cryptocurrency balances on deposit, as well as sourcing a financial institution to accept the bank drafts that are to be transferred to us. Unfortunately, these efforts have not been successful. Further updates will be issued after the hearing.
However, rumours amongst cryptocurrency investors and media reports suggest that it could be an exit scam.
In this case, Cotten could have faked his death in order to escape the possibility that QuadrigaCX never even had the CAD$190 million in any cold storage wallets at all.
With the first hearing scheduled this week (February 5, which is ironically international Safer Internet Day), jumpy investors will be hopeful for good news.
It's not the first time QuadrigaCX has landed in hot water – according to cryptocurrency news site Coindesk, QuadrigaCX lost up to CAD$14 million of Ether in 2017 due to an error with a splitter contract.