QuadrigaCX judge grants $1.6M fees for EY, law firms

The Supreme Court of Nova Scotia, Canada, has approved more than $1.6 million ($2.1 million CAD) in fees for firms seeking to recover funds from the controversial demise of Canadian cryptocurrency exchange QuadrigaCX, according to a recent court document.

Justice Darlene Jamieson ruled on Wednesday to approve all activities undertaken and fees incurred by Ernst & Young (EY), Stikeman Elliot (EY’s legal representative), Miller Thomson (representative counsel), and Cox & Palmer (representative counsel) in the ongoing Companies’ Creditors Arrangement Act (CCAA) proceedings on behalf of QuadrigaCX.

The judge authorized EY’s bill for $592,396 ($778,444 CAD) in legal and other fees, noting that the firm has done extensive work in administering the CCAA proceedings and recovering funds in behalf of the exchange and its affected users. She said the accounting firm investigated what she called the country’s first insolvency proceeding involving cryptocurrency.

EY’s report filed before the Supreme Court revealed it hired 18 outside experts to help with the audits.

As per CoinDesk, EY and its legal representatives charged a total of $1.3 million ($1.7 million CAD), while law firms acting as representative counsel charged $340,000 ($446,000 CAD). The payments will be obtained from the recovered funds in the creditor accounts, which amount roughly to $25 million ($33 million CAD).

The remaining $23.4 million ($31 million CAD) will reportedly be distributed to the creditors. EY will also sell certain assets of QuadrigaCX’ deceased Founder and CEO Gerald Cotten to gather an additional $9 million ($12 million CAD).

The exchange apparently lost access to its cold wallet holdings after Cotten passed away last December. His widow Jennifer Robertson filed an affidavit to claim that QuadrigaCX owed approximately 115,000 users an estimated $190 million ($250 million CAD). She said she could not access any of the funds as Cotten was the sole operator with knowledge of the crypto account’s private keys.

However, the latest report by EY found that Cotten may have misappropriated the holdings of his clients to use personally and to support the margin trading of cryptocurrencies like zcash and dogecoin. EY called the exchange’s operating infrastructure as “significantly flawed” as “activities were largely directed by a single individual” and “typical segregation of duties and basic internal controls did not appear to exist.” The firm said there were no accounting records and no segregation of assets between QuadrigaCX funds and user funds.

Cotton has also allegedly created accounts under aliases, and “unsupported deposits were deposited and used to trade within the platform resulting in inflated revenue figures, artificial trades with users, and ultimately withdrawal of cryptocurrency deposited by users.”

In March, EY admitted it cannot trace the more than $100 million ($132.1 million CAD) in various cryptocurrencies the exchange was supposed to have held. Thus, EY moved to have the company placed in bankruptcy, and Nova Scotia Supreme Court Judge Michael Wood approved the motion.

Wednesday’s proceedings approving fees signified the official end of the CCAA process, and QuadrigaCX will officially only be in bankruptcy.

Meanwhile, Miller Thomson has started the claim process for creditors with a final due date on August 31, 2019. EY has also put up a website to cater to individuals who are uncertain of the amounts they held or need verification.