In what sounds like the script of a new Netflix television drama, Canada’s largest cryptocurrency exchange firm cannot access accounts with close to Rs 1,000 crore worth of Bitcoin because its recently deceased CEO was the only person who knew the passwords.
Gerald William Cotten, founder and CEO of the firm, died suddenly in India on January 9, 2019, leaving many people “locked out” of their cryptocurrency accounts because only Cotten knew the password to their accounts.
Who was Gerald William Cotten?
30-year-old Gerald William Cotten founded Quadriga Fintech Solutions Corp (Quadriga) and ran it as CEO since December 2013. He has a Bachelors of Business Administration from the Schulich School of Business from York University in Canada. He had extensive experience in digital currencies and was a certified “Bitcoin Professional” by the Crypto Currency Certification Consortium in 2014. He lived with is wife, Jennifer Robertson, in Nova Scotia, Canada.
Quadriga is an online trading platform that allows users to deposit cash or cryptocurrency and then stores the digital coins on blockchain ledgers that are locked with an “immutable alphanumeric code.” The company has 363,000 registered users and holds approximately $147 million in the form of Bitcoin cash and gold, litecoin, and ether—all digital currencies.
What is cryptocurrency
The International Monetary Fund (IMF) explains that Bitcoin, Ripple, Litecoin and others are digital currencies that are created with the science of cryptography that uses mathematics to protect information. Cryptocurrency only exists on virtual networks and removes middlemen like banks and payment apps so that customers can send each other money directly, even if they don’t have a bank account.
Although all transactions are recorded in a permanent ledger for security, they are anonymous, sometimes untraceable, and poorly regulated, if at all. Customers also risk losing their money if they forget their password.
Aftermath of his death
Cotten died in January after complications with Crohn’s disease, a bowel disease that inflames the digestive tract and causes severe abdominal pain and fatigue. In a Facebook post, Robertson wrote, “A visionary leader who transformed the lives of those around him, Gerry died due to complications with Crohn’s disease on December 9, 2018, while travelling in India, where he was opening an orphanage to provide a home and safe refuge for children in need.”
To increase security, Cotten had initially transferred the virtual currency offline or to “cold storage”. The issue is that he then moved this money to “hot wallets” or to a server that can only be accessed from his laptop through certain codes and passwords. As Cotten was the only person with knowledge of the codes to the reserves, Quadriga is now struggling to refund money to their users.
Robertson said on record that she has neither access to his encrypted laptop nor knowledge of where, if at all, he has stored these passwords. “The laptop computer from which Gerry carried out the Companies’ business is encrypted and 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”, she said in an affidavit to the court.
Tech experts were asked to hack into Cotten’s devices to retrieve the passwords, but have been unsuccessful so far.
Quadriga’s debt-ridden past
Along with the current financial trouble, Quadriga owes customers about $250 million, including $70 million in flat reserves or paper money.
The company’s money is being held up by payment processor Billerfy, that could not endorse the bank drafts. Therefore, the Canadian Imperial Bank of Commerce (CIBC) froze this money until the matter could be resolved.
On January 31, Quadriga filed for “creditor protection” meaning it needed time to figure out how it would repay its debt, and on February 5, appointed Ernst & Young (EY) as an independent monitor to help with the same. Quadriga’s attorney also asked the court if EY could help Billerfy with endorsing the drafts, however, Managing Director of Billerfy José Reyes said he has not been contacted by EY.
Quadriga customers have been worried about the company declaring bankruptcy for months now, especially after they had trouble withdrawing their funds. A report in the New York Times said that people are speculating that Cotten has faked his death to abscond with the customer’s money and that the company is lying about not having access to it. Robertson has complained of threats and “slanderous comments”.
On February 5, 2019, the Nova Scotia Supreme Court stayed the proceedings against the company for 30 days to allow it to pursue other means of reimbursing the customers.
Quadriga’s full statement
Today an order for creditor protection in accordance with the Companies’ Creditors Arrangement Act (CCAA) was issued to allow us the opportunity to resolve outstanding financial issues that have affected our ability to serve our customers.
We did not enter into this decision lightly. For the past weeks, we have worked extensively to address our liquidity issues, which include locating our very significant cryptocurrency reserves held in cold wallets required to satisfy customer cryptocurrency balances on deposit and sourcing a financial institution to accept the bank drafts being transferred to us. Unfortunately, these efforts have not been successful. Since we were unable to resolve these issues in a timely fashion, we did not want trading to continue on our platform. We filed for creditor protection to help resolve these matters and preserve the interests of our customers.
With this filing, the Court has appointed a monitor, Ernst & Young Inc., an independent third party to oversee these proceedings as we make every effort to address our customer obligations. Filing for creditor protection allows us to work diligently through the process, and to try ensure the viability of our company.
We are sure you have many questions. We are in the early stages of a long process and we do not have all the answers right now. What we can tell you is that the CCAA process will allow QuadrigaCX to keep all options open to attempt to maximize the funds available for the company’s stakeholders. We will provide further updates to the extent possible.
Included below is a Q&A, which we hope will address some of the questions you may have at this time.
QuadrigaCX values and appreciates all of its customers and its employees. We thank you for your support and understanding during this challenging time.
Rhea Arora is a Staff Writer at Qrius.