Gerald Cotten's sudden death left C$190 million ($145 million) in Bitcoin and other digital assets protected by his passwords unretrievable. Without the digital keys, clients lose access to digital coins and funds.
Digital-asset exchange Quadriga CX has a $200 million problem with no obvious solution — just the latest cautionary tale in the unregulated world of cryptocurrencies.
The online startup can’t retrieve about C$190 million ($145 million) in Bitcoin, Litecoin, Ether and other digital tokens held for its customers, according to court documents filed Jan. 31 in Halifax, Nova Scotia. Nor can Vancouver, B.C.-based Quadriga CX pay the C$70 million in cash they’re owed.
Access to Quadriga CX’s digital “wallets” — an application that stores the keys to send and receive cryptocurrencies — appears to have been lost with the passing of Quadriga CX Chief Executive Officer Gerald Cotten, who died Dec. 9 in India from complications of Crohn’s disease. He was 30.
Cotten was always conscious about security — the laptop, email addresses and messaging system he used to run the 5-year-old business were encrypted, according to an affidavit from his widow, Jennifer Robertson. He took sole responsibility for the handling of funds and coins and the banking and accounting side of the business and, to avoid being hacked, moved the “majority” of digital coins into cold storage.
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His security measures are understandable. Virtual currency exchanges suffered at least five major attacks last year.
The problem is, Robertson said, that she can’t find his passwords or any business records for the company. Experts brought in to try to hack into Cotten’s other computers and mobile phone met with only “limited success” and attempts to circumvent an encrypted USB key have been foiled, his widow, who lives in a suburb of Halifax, said in the court filing.
“After Gerry’s death, Quadriga’s inventory of cryptocurrency has become unavailable and some of it may be lost,” Robertson said. The company’s access to currency has been “severely compromised” and the firm has been unable to negotiate bank drafts provided by different payment processors.
Quadriga CX’s directors posted a notice on the firm’s website Jan. 31 that it was asking the Nova Scotia court for creditor protection while they address “significant financial issues” affecting their ability to serve customers. On Tuesday, the court granted Quadriga a 30-day stay in a bid to stop any lawsuits from proceeding against the company, The Canadian Press reported. The firm was also granted protection from creditors.
“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,” the firm said. “Unfortunately, these efforts have not been successful.”
As is often the case with crypto, the episode has raised speculation on Reddit’s online forums, where posters are wondering aloud if the business was a scam, calling for class-action lawsuits and even concocting conspiracy theories that call into question whether the CEO is even deceased. The latest online speculation suggests that Quadriga CX funds have been moving — even though the firm claims they can’t get access.
Cotten filed a will 12 days before his death listing substantial assets, according to court documents.
He left all his assets to his wife and made her the executor to his estate, the documents show.
The will outlines numerous assets he held, including several properties in Nova Scotia and in Kelowna, B.C., a 2017 Lexus, an airplane, a Jeanneau 51 yacht and his pet chihuahuas, Nitro and Gully.
With assistance from Bloomberg’s Luke Kawa