Gerald Cotten, the deceased co-founder of Canada-based Quadrigacx crypto exchange used user funds for personal gain. Ernst & Young (EY), an audit firm unveiled this in its fifth report. EY filed this report with the Supreme Court of Nova Scotia on June 19.
According to a publication, EY notes that the operations of the now-defunct crypto exchange were,
significantly flawed from a financial reporting and operational control perspective.
The audit firm pointed out that Cotten was the sole director of almost all activities on the exchange. Also, the exchange lacked segregation between duties and primary internal controls. On top of this, EY added that the exchange had not separated its funds from those of its users.
In its report, EY cited that the exchange’s profitability was out of sight. Apart from this, the firm found that the exchange did not keep user funds in its wallets at all times.
Significant volumes of Cryptocurrency were transferred off Platform outside Quadriga to competitor exchanges into personal accounts controlled by Mr. Cotten. It appears that User Cryptocurrency was traded on these exchanges and in some circumstances used as security for a margin trading account established by Mr. Cotten.
Cotten also created several fake accounts on the exchange under different aliases. Reportedly, he used these accounts to make unverified deposits and trade within the platform. As a result, Quadriga’s revenue figures increased. At this time, Cotten was making artificial trades with the exchange’s users. Eventually, customers ended up withdrawing their crypto from the platform.
While trading with competitor exchanges, Cotten suffered trading losses and had to pay large sums in fees. These losses reduced Quadriga’s crypto reserves.
Nonetheless, EY said that it had failed to confirm the identities of the wallet holders to whom Cotten had transferred large sums of crypto.
At the time of filing the report, EY noted that Quadriga is yet to pay 76,000 customers. The exchange owes these users approximately $162.2 million in crypto and fiats.
Competitor exchanges received different crypto coins from Quadriga starting 2016 to this year. These include BTC, ETH, and LTC. The report lists all crypto transfers by the exchange. Included in the list is $60.5 million worth of BTC, which Quadriga could not account for. EY claims that Quadriga sold these funds via an unnamed third-party exchange.
This news comes after Quadriga filed for creditor protection. This move came after the death of Cotten, which blocked the exchange from accessing its cold wallets. In so doing, the exchange got a chance to solve its issues.
Do you think Quadrigacx will be able to pay the debt it owes its customers? Let us know in the comments below.