Canadian Cryptocurrency Exchange QuadrigaCX Lost $190 Million Worth Of Digital Assets

Bhushan Akolkar
By Bhushan Akolkar
Posted on Feb. 2, 2019
Canadian Cryptocurrency Exchange QuadrigaCX Lost $190 Million Worth Of Digital Assets

One of Canada’s biggest cryptocurrency exchange QuadrigaCX seems to be facing a severe financial issue after it lost access to its cold storage wallet. The exchange is reportedly missing funds worth 190 million CAD in digital assets, reports local publication The Globe and Mail. This amount is lost in the form of digital assets like Bitcoin, Bitcoin Cash, Bitcoin Cash SV, Bitcoin Gold, Litecoin, and Ethereum. 

To avoid bankruptcy, the exchange the exchange has filed an affidavit with the Supreme Court of Nova Scotia, for protection from the creditors. The affidavit notes that the exchange soon entered a liquidity crisis after the sudden death of its founder Gerry Cotten, last year on December 9. The official filing from QuadrigaCX notes:

“For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets, and that are required to satisfy customer cryptocurrency balances on deposit, as well as sourcing a financial institution to accept the bank drafts that are to be transferred to us. Unfortunately, these efforts have not been successful”. 

Auditing QuadrigaCX’s Cold Storage Wallets 

Cold storage wallets are offline storage systems secured by digital keys to protect funds in events of hacking and thefts. Cotten was solely responsible for having the keys to the exchange’s wallet. The affidavit read:

“The normal procedure was that [QuadrigaCX founder and CEO Gerald Cotten] would move the majority of the coins to cold storage as a way to protect the coins from hacking or other virtual theft.”

An official statement on its website shows that QuadrigaCX filed “an application for creditor protection in accordance with the Companies’ Creditors Arrangement Act,” to address the ongoing “financial” issues. According to PwC, this act allows financially troubled companies to “restructure their affairs”.  

Big four auditing giant Ernst & Young is appointed by the exchange to probe its proceedings as an independent third party. The auditing firm notes: 

“Quadriga was unable to access the cold wallets and/or discovered that the cold wallets contained minimal cryptocurrency units.”

Looking Into Cotten’s Personal Computer

The Canadian publication notes that Cotten used to mostly work from his personal computer at home which was encrypted. In the affidavit, Cotten’s wife Jennifer Robertson states: “I do not know the password or recovery key. Despite repeated and diligent searches, I have not been able to find them written down anywhere.”

Robertson also hired a cybersecurity expert to look into Cotten’s computers, but the attempt was unsuccessful. Robertson also says that she has been receiving several threats. “Slanderous comments have been made against [her] and sent through Facebook messenger to [her] entire contact list.” 

Executives from other Canadian exchanges told the operators that it was unusual for any single executive to control all of the exchange’s funds. Michael Gokturk, CEO Einstein Exchange in Vancouver, said, “It’s the equivalent of walking around with millions of dollars in cash on you at all times.”

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