Quadriga Exposed.
One of the biggest stories to come out of this year was Quadriga CX exchange disaster. Just as a quick recap, the exchange had a long and successful run as Canada’s biggest and best Bitcoin trading exchange. The CEO and founder of the exchange recently died and he took the password to all the accounts with him. Not his wife knew these keys and when they tried to get into his computer they couldn’t find anything in regards to the required details to get into accounts leaving the exchange useless and millions of dollars worth of cryptocurrency safe but just out of reach.
The exchange had a good time as the biggest exchange in Canada. Christine Duhaime is the former counsel to the exchange and has recently spoken to CoinDesk to give her thoughts on the exchange and her history at the company.
Duhaime has said in a blog post that the firm was among the only exchanges to publicly publish audits or obtain cold storage insurance.
Both choices were laudable and rare among exchanges in 2015 after she was sacked following six months of providing advice on regulatory issues. The lawyer said that the CEO, Gerald Cotten, wanted to move away from being publicly listed company and shook out all the law and order types. She has said that the firm is composed of four companies in total and therefore four sets of shareholders have a stake in the assets of Quadriga.
Being her firm’s hiring Quadriga, the firm believed it had been inadvertently involved in a pump and dump scheme.
“It is my belief that the whole QuadrigaCX team came to believe that the company may have unwittingly become involved in a Vancouver pump-and-dump scheme. Whether it had been drawn into a pump-and-dump is not for me to say because it was before my time, but I can say that QuadrigaCX was run by tech geeks, who were competitive, ambitious and smart but who were unfamiliar with the capital markets ecosystem in Vancouver.”
Following this, the Canadian exchange bought its way out of many shareholder agreements. Simultaneously, some shareholders never received a penny of their money back.
“There were few shareholders left by the time we exited in early 2016, and the shareholder lists publicly available do not appear to be up-to-date. Three shareholders have recently told me that they have never received notice of any annual general meetings and didn’t receive so much as a $1 dividend from QuadrigaCX in three years, despite how profitable it appears to have been.”
To take the firm completely private, the CEO eliminated everyone that was in relation to compliance or regulatory oversight. This way, the company moved on from being as regulated as possible to lawlessness, in the regulatory sense according to Duhaime.
“From that moment onwards, Mr. Cotten solely took over QuadrigaCX and operated the exchange as if it had no investors, no shareholders, no regulatory agencies and no law that applied to it – no corporate law, no securities law, no anti-money-laundering law and no contract law. I don’t know why Mr. Cotten decided to eschew regulatory law but I never spoke with him after that day.”
According to previous reports, the CEO himself controlled a big portion of the exchange’s virtual wallets. This was the final straw in the security model that allowed an alleged massive loss of funds following his death in December last year. More than $250 million (CAD) in outstanding claims by more than a hundred thousand people exist against Quadriga and its former lawyer wonders why certain legal actions have yet to be taken to ensure that whatever funds left are actually protected for the future.
“I don’t know if there is $137 million parked in a few wallets; I don’t know why the bitcoin addresses that were supposed to be holding $92.3 million turned up empty; I don’t know why the wallet address holding $44.7 million of other cryptos can’t be disclosed; I don’t know why no law firm has applied for a Mareva injunction to preserve assets; I don’t know why the litigation is in Nova Scotia when British Columbia Courts have jurisdiction and the witnesses and evidence are in British Columbia”
Duhaime has said that she was reluctant to author a blog post on the subject of Quadriga CX but has the hope that doing so will raise awareness around the need for improved regulations on the exchange.
In the end, Quadriga’s story and other centralized exchanges that have all suddenly been unable to service withdrawals shouldn’t be taken lightly. Furthermore it will highlight the need for decentralised exchanges.