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Quadriga CX Mystery Deepens with Reports of Empty Wallets and $100 Million Exchange Transfers

Quadriga CX Mystery Deepens with Reports of Empty Wallets and 100 Million Exchange Transfers

The dramatic fallout from the death of Quadriga CEO Gerard Cotten made headlines around the world in December 2018. Cotten reportedly passed away from complications related to Crohn’s disease during an ill-fated trip to India. Cotten was the sole individual with access to a major portion of Quadriga’s cryptocurrency funds, worth a reported $135 million. Now, in a latest dramatic twist, two reports have been published which may help recover some of the missing funds.

One report has uncovered empty cryptocurrency wallets connected to Quadriga. The report, which is viewable in its entirety here, was written by Ernst and Young, a law firm appointed as a monitor to the Quadriga CX case by the Nova Scotia supreme court. According to the report, six cold wallets identified with Quadriga have been uncovered, but they do not contain the missing cryptocurrency funds. The report also uncovered additional personal accounts held on Amazon Web Services (AWS) by Cotten, but as this was registered as a personal account, Ernst and Young has not yet been granted access to it by AWS.

The latest report is the third written by Ernst and Young in its role as monitor. The first report, which is viewable on Scribd, contained the embarrassing revelation that Quadriga apparently inadvertently sent an additional 103 bitcoins to inaccessible wallets on February 6. This was long after Cotten’s passing, and the errant transfer has added to the funds which Quadriga CX can no longer access:

“On February 6, 2019, Quadriga inadvertently transferred 103 bitcoins valued at approximately $468,675 to Quadriga cold wallets which the Company is currently unable to access. The Monitor is working with Management to retrieve this cryptocurrency from the various cold wallets, if possible.”

In more positive news for those affected by Quadriga’s troubles, a report from Zerononcense claims that almost 650,000 of Quardiga’s missing Ethereum has been found. The report states that QuadrigaCX moved 649,708 ETH to the Kraken, Bitfinex, and Poloniex exchanges. And the report is direct in describing the significance of this discovery:

“…if funds are positively located, the knowledge of private keys or passwords would not be necessary to retrieve them. Given the extraneous circumstances, it stands to reason that the above-listed exchanges would be more than willing to facilitate the transfer of these funds back to QuadrigaCX so that they may be redistributed to their customers.”

The report estimates the value of Ethereum held in these accounts to be around $90.3 million. This represents a huge proportion of the funds that QuadrigaCX lost access to following Cotten’s death. However, the report also notes that it is not yet certain whether the full amount is still being held in these accounts.

The news of Zerononcense’s report broken soon after Kraken published a blog post offering a $100,000 reward for finding Quadriga CX’s missing funds.

The latest Ernst and Young report contains a request to extend its investigation into Quadriga’s missing funds by an additional 45 to 60 days. The investigation was originally set to conclude on March 7. It looks like it will take significantly longer than this to provide firm answers to what has happened to Quadriga’s missing funds.

Piecing together the mystery of Quadriga’s missing funds

Both mainstream and cryptocurrency-focused news outlets have been pouring over the contents of the latest reports and breaking down what it means to the ongoing search for Quadriga’s funds.

An article from Bloomberg points out that the latest Ernst and Young report raises more questions than it answers:

“Ernst & Young identified six cold wallet addresses used by Quadriga to store Bitcoin in the past. Five of those wallets haven’t had any balances since April 2018, and a sixth “appears to have been used to receive Bitcoin from another cryptocurrency exchange account and subsequently transfer Bitcoin to the Quadriga hot wallet” on Dec. 3.”

And an article from Financial Post focuses on some potential unusual trading activity on the Quadriga platform that was mentioned in the report:

“The monitor also found 14 user accounts on the QuadrigaCX platform that were “created outside the normal process,” using a number of aliases… More [importantly], the accounts were created internally “without a corresponding customers and used to trade on the Quadriga platform,” the monitor reported… “The monitor was further advised that deposits into certain of the … accounts may have been artificially created and subsequently used for trading on the Quadriga platform.”

Some of the cryptocurrencies previously held at the identified bitcoin cold wallets were provably sent to exchanges, EY said. While “it is not possible to ascertain with absolute certainty from public information who the owner of an address is,” existing tools can confirm that certain exchanges own specific addresses.

CoinDesk’s article on the report draws attention to the report’s discovery that funds were moved from Quadriga CX’s cold wallets to some of the “at least 14 different crypto exchanges” with which Quadriga held accounts:

“Some of the cryptocurrencies previously held at the identified bitcoin cold wallets were provably sent to exchanges, EY said. While “it is not possible to ascertain with absolute certainty from public information who the owner of an address is,” existing tools can confirm that certain exchanges own specific addresses.”

The information contained within Ernst and Young’s third report has deepened the speculation that has surrounded Quadriga CX since Cotten’s death. Some other developments that have drawn media coverage in the months since his passing include confirmation from a Jaipur hospital that Cotten died under its care, publicized by the Times of India, which seemingly disproved a widely-shared conspiracy theory that Cotten’s passing may have been faked as part of an elaborate scheme to steal Quadriga’s users funds. The main sources of this conspiracy theory had been the apparent ease of obtaining a death certificate within the region of India in which Cotten’s death was reported, along with a revelation contained in an article from Bloomberg that Cotten had filed a less than two weeks before his passing.

Other speculation has fallen on allegations that Cotten’s Quadriga co-founder is an alias of Omar Dhanani, who was convicted in the US for fraud. These allegations originally appeared in a Reddit post over a year ago, but have been widely picked up on again in the fallout from the current Quadriga drama. News outlets reporting on this aspect of the story include The Globe and Mail, which is Canada’s most widely-read daily newspaper. The Globe and Mail’s article on the topic is hidden behind a paywall, but crypto news sites Invest in Blockchain and CryptoPotato have also delved into this aspect of this story.

Does Zerononcense report contain the answers?

The Zerononcense report’s forensic breakdown of Quadriga Ethereum funds held on exchanges was published a few hours before Ernst and Young’s latest report, and most news coverage currently available treats each report in isolation. But hopefully further details and analysis will emerge as the investigation continues that shows whether Zerononcense has solved the mystery of the empty wallets contained with the Ernst and Young report.

As stated in the report, this is a new development that was almost certainly previously unknown to those involved in the investigation into Quadriga’s missing funds:

“Based on the transaction analysis included in the report, it appears that a significant amount of Ethereum (600,000+ ETH) was transferred to these exchanges as a means of ‘storage’ during the years that QuadrigaCX was in operation and offering Ethereum on their exchange… Given the testimony in Jennifer Robertson’s affidavit stating that neither she nor the other involved individuals at QuadrigaCX were knowledgeable about where Gerry Cotten was moving and storing crypto, it is very possible that QuadrigaCX, the creditors, and other entities are unaware of this discovery.”

The report’s analysis concludes with “99% certainty” that “a cumulative 649,708 Ethereum was sent to Kraken, Bitfinex, and Poloniex directly by QuadrigaCX, which was worth a total of $100,490,150 at the time of transfer.” The report’s author, James Edwards, adds that this “is consistent with the theory posited in [Cotten’s widow] Jennifer Robertson’s affidavit that they were sent to these exchanges as a means of storage.”

Some of those reacting to the news have pointed out that it seems strange that an exchange would use other exchanges to store their funds. The report suggests a few examples from “a litany of reasons” for this state of affairs, ranging from arbitrage to simply preferring other exchanges as a means of storage for the funds. The report’s analysis gives large transfers between Quadriga’s hot wallets and the Bitfinex, Kraken, and Poloniex accounts as its main evidence. The report also stresses that its analysis and conclusions should not be taken as any indication of foul play between Quadriga and the other three exchanges.

Another interesting section of the report details previous incompetent handling of funds by Quadriga, pointing to an example of the exchange inadvertently locking more than 60,000 ETH in an inaccessible smart contract:

“Approximately two years ago, QuadrigaCX lost 60k+ Ethereum by sending it to a smart contract on the Ethereum blockchain without the correct ‘calls’ (Solidity function), so instead of the funds being forwarded to QuadrigaCX’s old Ethereum hot wallet, they remained trapped within the contract forever.”

Any Closer to a Resolution?

The Zerononcense report notes that “this report should serve as a helpful addition to the QuadrigaCX narrative, rather than a conspiratorial piece that speculates on whether the exchange or its owners have been honest.” And as mentioned earlier, the latest Ernst and Young report includes a request to extend the firm’s investigation for an additional 45 to 60 days.

So no firm conclusions can yet be drawn from these latest developments. The mystery and drama surrounding Quadriga CX still has some way to go before it can be said to be resolved. But these latest developments should be of great interest both to those investigating Quadriga’s missing funds and to any customers whose cryptocurrency holdings have been affected.

About Christopher Williams

Christopher Williams is a British writer based in South Korea with a strong interest in emerging technologies, cryptocurrency, and the development of decentralized apps.