Quadriga - Revisiting The $190 Million Crypto Scandal
Earlier this year, a documentary from a popular American streaming service refreshed the memories of those familiar with the story about Quadriga.
On March 30, 2022, the Netflix true-crime documentary Trust No One: The Hunt for the Crypto King made its premiere.
As can be hinted from the title, it’s about cryptocurrency.
The trailer reveals it’s about a crypto scandal to the tune of $190 million that rocked the Canadian crypto community.
And who’s that crypto king?
Is he the one responsible for the mismanagement and/or loss of that insane amount of money?
Did he cause the downfall of Quadriga, which, at one point, used to be the number one choice for crypto exchange in Canada?
The Ontario Securities Commission (OSC) labored for ten months to investigate the Quadriga scandal.
In December 2013, the then 25-year-old Gerald “Gerry” Cotten and his business partner, Michael Patryn, launched Quadriga in Canada.
The launch was timely because at that time, Bitcoin’s value was high and Canadians wanted easy access to a Bitcoin trading platform Quadriga charges a transaction fee on buyers and sellers.
Regarding the other co-founder, Michael Patryn’s birth name turned out to be Omar Dhanani.
He and Cotten had a falling off in 2016.
OSC noted that when Patryn, aka Omar, left, Cotten took the reins of the company completely.
Those who left also included:
- the Chief Financial Officer (CFO)
- legal counsel
By 2017, approximately 363,000 people traded via Quadriga, resulting in almost $2 billion worth of trades.
Imagine how much Cotten made money from all those transaction fees.
After speaking to former clients and investors, the OSC learned the two major reasons why they trusted Quadriga:
- It’s a Canadian company.
- They found Cotten trustworthy.
In 2018, Quadriga felt the crypto market slump.
And so did Cotten.
The overwhelming losses most likely forced him to resort to questionable decisions.
According to the OSC:
For months, Cotten had been misappropriating client assets both to fund withdrawals and to pay personal expenses.
Cotten once transferred $24 million to himself and to his wife “for personal use.”
To fund the rising withdrawal requests from clients, he returned “some” of those money to Quadriga.
When it was still insufficient, Cotton added $10 million.
His death in December 2019 exposed how financially debilitated Quadriga had become.
The company owed some 215 million in Canadian dollars (CAD) or roughly 190 million in U.S. dollars (USD) to approximately 76,000 clients.
Even if Cotten left behind a way to access the crypto reserves, Quadriga “had almost no assets” to pay them.
The rumors that the Quadriga CEO faked his death have persisted up to 2022.
Gerald William “Gerry” Cotten (1988-2018), the son of antiques store owners, Bruce and Cherryl Cotten, grew up in Belleville, according to Vanity Fair.
He has a sibling named Bradley.
Cotten earned his business administration degree in 2010 at the Schulich School of Business in York University in Toronto.
From his hometown, Cotten relocated to Vancouver a couple of years after he graduated.
It was there where the future co-founder and CEO of Quadriga would begin his cryptocurrency journey.
There in that seaport, he encountered the Vancouver Bitcoin Co-op, a group of approximately ten entrepreneurs.
He would participate in their meetings.
Alex Salkeld, one of the co-op’s original members, described Cotten as “always smiling, really friendly.”
Cotten incorporated QuadrigaCX (Quadriga coin exchange) in British Columbia in November 2013.
Michael Patryn, aka Omar Dhanani, joined him.
Quadriga eventually proved itself as Canada’s “cheapest,” “fastest,” and “safest” crypto exchange, as described by Vanity Fair.
It cemented the credibility of Cotten’s Bitcoin trading platform.
And, as the cliché goes, the rest is history.
Years later, he would accumulate incredible material wealth through Quadriga.
Cotten purchased four houses: three in Canada and one in the U.S.
One sits on a 4-acre (1.6 hectares) property in the town of Mahone Bay in Lunenburg County, Canada.
Then each in Calgary and in Kelowna in British Columbia.
In addition to that: a three-bedroom house in an opulent neighborhood in the city of Fall River in Bristol County, Massachusetts.
His other assets also included:
- a Lexus (Toyota’s luxury vehicle division)
- a $600,000-dollar yacht (nickname: Gulliver)
- a CESSNA 400 (per Aviator Insider, a brand-new unit of this aircraft carries a price tag of $466,000 to $620,000)
- 14 residential rental properties (one in Bedford, England; others in different parts of Canada, such Nova Scotia)
Aside from frequent recreational trips abroad with his wife, they still got time for some charitable works.
However, roughly a month before 2019 ushered in, the life of the cofounder and CEO of Quadriga was cut short.
Cotten was supposed to be enjoying an Indian honeymoon trip when one day he found himself taken to Fortis Hospital in Jaipur.
He complained of stomachache, which was later found out to be acute gastroenteritis.
At 30, Cotten died on December 9, 2018 - he got admitted, December 8 - due to “complications from Crohn’s disease.”
The New York Post reported that Cotted had three heart attacks while confined.
The third one took the life out of him.
Based on the information from Find a Grave, Cotton’s remains were cremated.
With his death, the way to access the Bitcoin reserves of Quadriga seemed to “die” as well.
It took a month before the wife informed the public that the Quadriga CEO passed away.
Jennifer Robertson (born Jennifer Kathleen Margaret Griffith) made the announcement via the company’s Facebook page, according to Vanity Fair.
CBC’s Andrew Chang interviewed her in January 2022.
There, she once again cleared her name of any fraudulent actions or other misdeeds in relation to Quadriga.
I’ve already said it a million times now: I don't know . . . I'm tired of defending myself for something I didn’t do.
According to CBC, Cotten’s widow was never placed under investigation.
She didn’t get her hands on the assets purportedly stolen by her late husband from Quadriga worth $12 million.
Court rulings allowed her to keep:
- some $90,000 in cash
- her wedding ring
- a 2015 Jeep Cherokee
- retirement savings amounting to $20,000
Robertson wrote the book Bitcoin Widow: Love, Betrayal and the Missing Millions to share her side of the story.
Released in January 2022, Canadian journalist and broadcaster Stephen Kimber co-authored it.
Perhaps the book will shed new light about Cotton and Quadriga.
Based on a Vanity Fair article, institutions that investigated the Quadriga scandal included the following:
- an undisclosed law enforcement agency
- an unnamed Japanese federal agency
- Federal Bureau of Investigation (FBI)
- Royal Canadian Mounted Police
Also, the Nova Scotia Supreme Court asked Ernst & Young (EY), a London-based accounting firm, for monitoring assistance.
According to the OSC, the Canadian Imperial Bank of Commerce (CIBC) froze the accounts by Billerfy in January 2018.
It’s one of the payment processors of Quadriga.
After Cotten’s death, the said money was transferred to EY.
It will be up to EY and how it will distribute the money to Quadriga clients.
EY was able to recover a total of $46 million (breakdown below; in USD):
- the $25 million from CIBC
- $12 million (in assets) - the one Jennifer Robertson forfeited
- $6 million (bank drafts) from one Quadriga contractor
- $600,00 from various payment processors
Law firm Miller Thomson posted on its website regarding an update as of January 2022.
It asks affected Quadriga clients to file their “proof of claim” at soon as possible.
So that EY can review their claims.
Based on an article by Decrypt posted on November 6, 2020, the number of former Quadriga clients who already made claims reached 17,053.
According to EY, it will try to work on them.
However, upon computation, EY only got 39.1 million CAD (29.8 million USD).
The Quadriga scandal is not the first crypto incident that inspired a documentary.
The Dead Man’s Switch: A Crypto Mystery tackled about what happened to Cotten and Quadriga.
Below are some other cryptocurrency documentaries worth checking out:
- Cryptopia: Bitcoin, Blockchains and The Future of the Internet (2020)
- Trust Machine: The Story of Blockchain (2018)
- Banking on Bitcoin (2016)
- Bitcoin: The End of Money as We Know It (2015)
- The Rise and Rise of Bitcoin (2014)
When Currency.com asked Samson Mow, in the case of Bitcoin, it won’t disappear.
Mow, the CEO of the new Bitcoin tech company JAN3 (est. 2022), said it will remain around for two reasons:
- it’s “decentralized”
- it’s “still very much in demand”
Unless those who died left nothing to provide access to their Bitcoins, finance website Kiplinger said that those crypto coins “could disappear forever.”
According to finance site NextAdvisor, it can be done if the owner who died set up a cryptocurrency estate plan.
The estate plan will identify the person(s) that the deceased owner wanted to give access to his/her wallet.
Yes, it’s possible as long as there exists a cryptocurrency inheritance left by the deceased owner.
The Quadriga incident could diminish public’s trust on cryptocurrencies.
Still, not all exchange or trading platforms exist to scam people.
As the OSC said:
What happened with Quadriga was an extreme example, and not necessarily representative of the broader crypto asset trading platform industry.
As the former Quadriga clients heal from their horrible experience, may transparency and investor protection continue to be upheld.