QuadrigaCX’s Missing Funds Are Missing – Yet Another Bitcoin Scam

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One thing of true and interesting value that Bitcoin has afforded us all is the ability to watch every financial and monetary scam known to human history be repeated at warp speed. The Canadian exchange, Quadriga CX, is simply another building block in this wall of experience. Here the claim is that the funds of the bankrupt company are missing – when, in fact, they’re missing. The distinction being that we’ve been told that the CEO died taking the combination to the safe with him. Closer examination showing that there’s nothing in the safe we can’t open because of his death.

This fairly obviously puts a certain question mark against those reports of his death.

For three months investigators attempted to unlock the password to accounts holding millions of pounds’ worth of cryptocurrency that could only be opened by a man who died in December. When they finally found a way in they found the accounts all empty — the latest twist to events surrounding QuadrigaCX, once Canada’s largest cryptocurrency exchange, and its chief executive, Gerald Cotten.

Hmm, yes, that is just such a puzzle, isn’t it?

It also noted 14 suspicious user accounts had been created on the Quadriga trading platform outside of the normal process for creating client accounts. These accounts had been involved in trading and withdrawing cryptocurrency to addresses not associated with Quadriga, and the auditors are currently examining the transaction histories.

The assumption rather is that those 14 accounts drained the system of its funds. But who was doing the draining? A useful thing to be asking is, well, who is missing as well as what?

Last month, Canadian cryptocurrency exchange QuadrigaCX found itself in an unusual situation, even by the standards of this lawless, scam-happy industry: The only person with the passwords to the exchange’s trove of cold storage funds allegedly died, taking access to customers’ money to the grave with him. Now it seems many of the digital wallets identified as potentially containing those funds are entirely empty.

It’s that allegedly carrying the weight there. It wouldn’t be the first time in the history of scams and frauds that a death has been convenient now, would it?

The circumstances surrounding Cotten’s death and the subsequent loss of Quadriga’s reserves have grown increasingly suspicious over the course of the past few months. The initial reports of lost cold wallet private keys have been followed-up by widespread concerns that the funds are simply lost forever. Cotten did explain the company’s strategy well before his untimely death, yet concerns remain. Experts have had great difficulty tracing the transactions that would have placed the funds in the cold wallets in the first place. In another twist that has caused substantial concern, the supposed cold wallets were themselves showing no record of activity on the blockchain for at least six months.

The funds appear to have been gone long before that reported death:

The official statement stated that Gerald Cotten passed away due to Crohn’s disease on December 9, 2018, in India. Soon after his death, the exchange shut down its operations, followed by an announcement that they had lost control over the cold wallets because of the unforeseen incident. Cotten was allegedly the only person who had control of the passphrase for the cold wallets; with his death, the exchange lost all access to customer funds stored in those wallets. The exchange lost control over leading cryptocurrencies: Bitcoin, Bitcoin Cash, Bitcoin Cash SV, Bitcoin Gold, Ethereum, and Litecoin [funds of around 115,000 customers]. The total sum of these funds was approximated to be $190 million.

If the funds didn’t exist – or at least weren’t in the company – before the founder’s death then that does put rather a different shine on the reports of the death.

One of the things about crypto is the blockchain. Meaning that attempting to ride off into the sunset with client funds doesn’t really work. For anyone can, with enough time and patience, examine the blockchain to see where those funds have been taken. A clever way to do it would be to disseminate the funds – and once they’re out of crypto and into more conventional money they’re rather untraceable – before doing the riding off. Of course, it’s always possible that there’s another twist to this story but that’s the way it’s looking now.