The level of financial mismanagement and fraud at the defunct QuadrigaCX exchange has been laid bare in the latest report by EY, the court-appointed monitor charged with sorting the mess left following Cotten’s supposed death in 2018, a death that is looking more and more suspicious with every month that passes.
Report Highlights Troubling Developments
The report, published Wednesday, exposed the following revelations:
- Quadriga’s operating infrastructure was “significantly flawed from a financial reporting and operational control perspective.” Gerald Cotten was in charge of almost all the financial activity, resulting in no segregation of duties and a lack of basic internal controls.
- There was no segregation of assets between QuadrigaCX funds and user funds, and no accounting records have been uncovered to date. Quadriga would have had no way of assessing their profitability, if there was any, and funds coming into Quadriga seem to have been used for “a number of other purposes” aside from funding user withdrawals.
- QuadrigaCX relied extensively upon the services of third parties to administer its fiat treasury functions, including “significant cash transactions”. These dealings were not recorded and the third parties were not held to account in any way.
- “Significant volumes” of assets belonging to QuadrigaCX were transferred off the platform to competitor exchanges into personal accounts controlled by Cotten. Cotten used these to trade with and as security for margin trading, with his losses affecting QuadrigaCX’s reserves. In addition, “substantial amounts” of coins were sent to wallets that EY has been unable to identify.
- Cotten created fake accounts on QuadrigaCX and traded between them to falsify volume.
- “Substantial funds” were transferred to Cotten himself and other related parties, and EY cannot locate any evidence justifying these transfers.
According to figures EY has managed to put together, a task made very difficult due to “limited books and records available to review, limited parties with institutional knowledge, reporting limitations within the Platform” and more, Cotten received over 21,500 BTC into an account on an unnamed exchange, of which Cotten liquidated all but 8 BTC. This equates to a loss of some $80m worth over three years, explaining why users began to have issues withdrawing their funds from the exchange.
Cotten’s Wife Involved?
The actions of Cotten’s wife Jennifer Robertson have long been under suspicion, and the report adds that significant fiat transfers were made to Robertson as well as Cotten himself. The assets bought with the money, which Robertson protected before announcing Cotten’s death, include real estate, securities, aircraft, boats, vehicles, gold, and silver, with an estimated value of $12M. It is unknown if Robertson was kept in the dark about the true origin of the funds, but once she saw how the business was being run she must have suspected that something wasn’t right and that the money cannot have been purely profit.
Falsified Death Theory Given Credence
Either way, there are still hundreds of millions of dollars in crypto still unaccounted for, with EY seemingly running out of leads to track them down. Cotten’s sudden disappearance and ‘death’ at a time when the exchange was on the verge of collapse appears more sinister with every month that passes. Plus, every piece of the puzzle that EY puts together points the finger firmly at him, giving further credence to the allegations of a falsified death that surfaced at the very start of the episode back in January.
