The repayment of cryptocurrency lost on QuadrigaCX: things are only just getting started

In the last few days, a new chapter has unfolded in the story of the Canadian cryptocurrency exchange Quadriga CX, which has so far rivalled the best court-room dramas in terms of unexpected twists and turns.

Contents:
1. Battle of the lawyers: round one
2. QuadrigaCX continues to lose money
3. QuadrigaCX’s story could prove to only be the first red flag

Battle of the lawyers: round one

On 14th February, legal teams representing various groups of former QuadrigaCX users, who have been left without access to their monetary assets due to the unexpected death of the company’s General Director, Gerald Cotten, attended a hearing at the High Court of Nova Scotia. The lawyers lodged applications to represent the interests of 115,000 traders in a collective lawsuit against the cryptocurrency exchange seeking compensation of US$ 70 million in cash, as well as an additional US$ 190 million in Bitcoin and other digital currencies.

Lawyers from some of Canada’s top legal firms such as Bennet Jones, McInnes Cooper, Miller Thompson, Cox & Palmer etc. tried their best to convince Justice Michael Wood that their firms should take on this landmark case, but to no avail as he didn’t make a decision. Wood stated that he would issue a written decision next week.

Meanwhile, QuadrigaCX is fast running out of money to pay for their lawyers, in spite of the fact that Gerald Cotten’s widow, Jennifer Robertson, has already paid roughly C$300,000 in legal fees. According to Maurice Chiasson, QuadrigaCX’s lawyer, the company currently doesn’t have enough funds to pay for 2 weeks’ legal services.

QuadrigaCX continues to lose money

Representatives of one of the world’s largest audit consultancy firms, Ernst & Young, who are currently auditing QuadrigaCX’s activity and providing the independent financial monitoring of this court case, also participated in the hearing. It’s worth noting that while conducting the audit, Ernst & Young’s representatives have seized four laptops, four smartphones and three completely encrypted USB sticks where digital assets, as well as other important information may be stored. All the physical evidence has been placed in a secure bank safe for the duration of the investigation and legal proceedings.

Moreover, the auditor also stated in their recently published “First Report of the Monitor” that on 9Th February QuadrigaCX employees transferred 103 Bitcoins, the equivalent of US$ 470,000, to a number of the company’s cold wallets, which they no longer have access to, by mistake. Ernst & Young’s representatives and members of the cryptocurrency exchange’s management team are currently working to identify these wallets and find ways to return digital currency which has been lost in such an absurd way.

In the meantime, a frequent Reddit user known by the username ‘u/dekoze’ stated that he had found the addresses of five crypto wallets belonging to QuadrigaCX, which the funds in question had allegedly been transferred to. According to him, none of these wallets had been active since April 2018, however, funds have recently been deposited into each of them directly from ‘hot’ wallets belonging to QuadrigaCX. However, the authenticity of this information still needs to be confirmed by the official auditor.

QuadrigaCX could prove to be only the first red flag

Just to jog your memory, QuadrigaCX’s 30-year-old founder died a few weeks ago while travelling in India from complications due to Crohn’s disease, which he was diagnosed with in December of last year. Sometime later it transpired that he had secretly transferred US$ 180 million belonging to QuadrigaCX users to a number of cold wallets, having “forgotten” to give anyone else the passwords required to access them. As a result, traders who have been double-crossed by this now face a long and difficult legal battle to reclaim their money, which has, to all intents and purposes, being stolen.

The General Partner of Mangrove Capital Partners, Michael Jackson, firmly believes that QuadrigaCX will not be the last cryptocurrency exchange whose users suffer such a fate. He maintains that crypto exchanges are not able to guarantee the security of funds in the same way that traditional banks can. According to Chainanalysis’s statistics, US$1 billion was stolen from cryptocurrency exchanges in 2018 due to cyberattacks. In spite of the prevalence of this problem, crypto exchange owners appear to be either unable or unwilling to find a solution.

Cryptocurrency trading is still fraught with a number of risks and QuadrigaCX’s story is a demonstrative example of how even a successful trader can lose their money as a result of completely unforeseen circumstances.