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The collapse of the Canadian cryptocurrency exchange Quadriga CX was due to a Ponzi scheme carried out by its founder Gerald Cotten, the Ontario Securities Commission said. Investors were shocked when their digital assets portfolios held by the firm worth millions of dollars disappeared Cotten suddenly died in December 2018.
On Thursday, the Ontario Securities Commission (OSC) said that Quadriga’s founder Gerland Cotten committed fraud when he opened accounts under aliases, according to Global News. Cotton then credited his account with “fictitious currency and crypto-asset balances, which he traded with unsuspecting clients,” the publication added.
“What happened at Quadriga was an old-fashioned fraud wrapped in modern technology,” staff at the OSC wrote in a report, according to Reuters. “While public release of an investigative report is rare, we believe the tens of thousands of Ontarians who entrusted Quadriga with their money and crypto-assets deserve to know what happened.”
OSC said that Cotten ran into a shortfall in assets available to meet withdrawal due to a downturn in crypto prices. He reportedly started running his Ponzi scheme by taking from other clients’ deposits to cover the shortfall.
The regulator also pointed out that the crypto exchange’s lack of registration helped its founder to commit fraud. “Quadriga did not consider its business to involve securities trading and it did not register with any securities regulator,” the OSC wrote. “This lack of registration facilitated Cotten’s ability to commit a large-scale fraud without detection. So did the absence of internal oversight over Cotten.”
Cotton suddenly died in December 2018 in India. He was in the country for his honeymoon as well as to open an orphanage.
His widow, Jennifer Robertson, tried to locate passwords for Quadriga accounts but failed to find any written records that her late husband might have made. She also said that she can’t access Cotten’s laptop because it was encrypted.
Around 76,000 Quadiga clients lost their investments when the firm collapsed in 2019. The total amount of assets up in smoke is estimated to be around C$169 million or $124.2 million. The report said that, between May 2016 and January 2018, Cotton transferred C$24 million to himself and Robertson for personal use.
