Ernst & Young released its fifth report of the monitor last night, and it was a doozy. I covered the report for Decrypt. If you have not read my story yet, check it out here.
The monitor’s report is 70 pages long, and I recommend finding a nice comfortable spot and reading all of it. It is page after page, paragraph after paragraph, of “What the hell?”
According to the report, from 2016 onwards, QuadrigaCX went completely off the rails. Gerald Cotten, the exchange’s now deceased CEO, appears to have had no interest in running a legitimate business. He treated customer funds like his own personal bank account—a bit like Bernie Madoff, only a lot more recklessly.
Cotten gambled with his customers’ money, went on lavish vacations, flew on private jets, and bought properties, an airplane, a yacht, whatever toys he wanted. Now most of the funds on the exchange are gone, and EY still has no clue as to where the cash proceeds went. The big question is, did Cotten really act alone?
Quadriga co-founder Michael Patryn is not mentioned in the report. According to what we know, he completely stepped away from the business in early 2016. After that, Cotten allegedly became a recluse and ran the business into the ground single handedly.
EY has also released a three-part (1, 2, 3) sixth monitor’s report detailing the costs of professional services related to Quadriga’s Companies’ Creditor Arrangement Act. Moving forward, EY is now the trustee in Quadriga’s bankruptcy proceedings.
I suspect that the collapse of crypto exchange QuadrigaCX, which was based in Vancouver, also left a bad taste in the city’s mouth.
A source close to the matter told me that Quadriga had between two to four Bitcoin ATMs in its early days, but those were gone by 2017. The exchange was offering cash withdrawals. Where did all that cash come from? It’s own Bitcoin ATMs and later, the company had partnerships with other Bitcoin ATM operators, the source told me.
Recently, I visited a Bitcoin ATM in Los Angeles and spent time chatting with the owner of the machine. He told me that his machine charged a 7% transaction fee for bitcoin purchases—5% if you are selling bitcoin—and they only do ID checks for amounts over $280.
Bitcoin ATMs vary. Some charge up to 19%, and some only let you buy bitcoin and other crypto—no selling.
In other news, I am now the editor of ATM Marketplace and World of Money. I’ll be writing about cryptocurrency, but also covering ATM machines, money and payments in general. As long as I get to read, research and write all day, I’m happy.
Ernst & Young (EY) has issued a Trustee’s Preliminary Report for failed Canadian crypto exchange QuadrigaCX. Essentially, the message to Quadriga’s creditors is: “Most of your money is gone, and we’ll probably never find it again.”
According to the report—filed on May 1, and published on EY’s website on May 10—Quadriga owes a total of CA$215 million, but it only has about CA$29 million to distribute to its 76,319 affected users. (Earlier court docs estimated 115,000 affected users. Apparently, a more accurate count is now available.)
The lengthy 50-page report mainly rehashes what we already know. But it is worth a read—especially the first 14 pages, the rest is mostly appendixes—if you need a refresher on what has happened so far. I’ll try and summarize the important bits.
Three legal entities
The report addresses assets and debts for three legal entities: 0984750 BC Ltd (operating as QuadrigaCX) and parent companies Quadriga Fintech Solutions and Whiteside Capital Corporation. The breakdown gets a little confusing, because some of the numbers overlap, but as of April 12:
0984750 BC Ltd—had CA$28,649,542 and owed CA$215,697,147.
Quadriga Fintech Solutions—had CA$254,180 and owed CA$214,873,113.
Whiteside Capital—had zero assets and owed CA$214,618,937.
Quadriga’s financial affairs are a total mess, and EY will probably never be able to sort everything out. “A complete and fulsome review of Quadriga’s financial affairs will take considerable time and effort to pursue and may not be possible or cost effective to complete.” It is relying an unaudited information for this report.
Tracking down the funds
To note, Quadriga filed for creditor protection under the Companies’ Creditors Arrangement Act (CCAA) on February 5. It is currently transitioning into bankruptcy, a process that will be completed by June 28. EY is the court-appointed monitor in Quadriga’s CCAA procedures and the trustee in its bankruptcy procedures.
Costodian: the frozen bank accounts
Most of Quadriga’s cash on hand comes from third-party payment processor Costodian. In January 2018, Costodian’s bankfroze about CA$25.7 million in funds that Costodian was holding on behalf of Quadriga. Costodian later got the money back in the form of bank drafts, which it was unable to deposit because no bank would touch the funds. When Quadriga applied for creditor protection, Costodian signed over the drafts to EY, who worked with Royal Bank of Canada to accept the drafts. EY put most of that money into a “disbursement account.”
Related to the Costodian bank drafts, there are CA$778,214 in disputed funds. Costodian claims it is entitled to unpaid processing fees. According to EY, “Quadriga takes the position that no additional fees are payable.” EY is working with Costodian’s lawyer to resolve the issue. If the parties can’t reach a compromise, they will return to court.
EY has put CA$720,000 of Quadriga’s money into a reserve account to address any final CCAA obligations. Any funds remaining in this account after the accountants and lawyers get paid will be transferred into Quadriga’s bankruptcy account. EY will include a final accounting of the CCAA’s administration in its final monitor’s report.
Hot wallet funds
Quadriga also held some crypto in its hot wallets. Those funds have been safely moved into offline cold wallet storage under EY’s control. The funds include approximately BTC 61.33, BCH 33.32, BTG 2.66, LTC, 851.73, ETH 960.36. In its report, EY estimates these funds are worth CA$500,000, but crypto prices fluctuate, so they are worth more now, and could be worth less in the future.
On February 6, before EY took control of the funds, Quadriga inadvertently sent 104 BTC from its hot wallets to its cold wallets. Those funds are as good as gone. Nobody can access Quadriga’s cold wallets, because only the company’s CEO Gerald Cotten held the keys, and he is dead.
Bulk bank drafts
Remember the photo of 1,004 checks sitting on a stovetop? Those were known as the “bulk drafts,” worth CA$5,838,125.92. The checks were written out to 1009926 B.C. Ltd., a “third-party” (I say that tongue in cheek) payment processor run by Aaron Vaithilingam, Quadriga’s former office manager. The company had dissolved, so it was impossible to cash the checks. They apparently just sat on a stove.
Here’s an example of Quadriga’s bookkeeping. These are apparently bank drafts. According to Chiasson they are now, “Off the stove.” pic.twitter.com/yvglesMHyM
EY re-instated 1009926 B.C. Ltd., and the checks were signed over and deposited into the disbursement account on April 18. (What a surprise forthis trader to learn the money was freshly sucked out of his bank account two years later!) EY held the money in the disbursement account for 30 days—in the event of any “bank recourse issues”—before sending it to Quadriga’s bankruptcy account.
Payment processors and other crypto exchanges
There is still a chance more Quadriga funds could be recovered. Quadriga money is still being held by several third-party payment processors, mainly BlackBanx (formerly WB21), which is allegedly holding CA$12 million of Quadriga funds. EY says it is continuing to work on the matter, but it doesn’t know how much it can recover.
EY is also investigating other crypto exchanges where Quadriga supposedly stored some of its crypto. The accounting firm notes, “many of the cryptocurrency exchanges have not cooperated with the monitor’s requests to date.” EY is going to keep after them, but says it may need to seek help from law enforcement.
Jennifer Robertson and all her properties
During the course of its investigations, EY learned that “Quadriga funds may have been used to acquire assets outside the corporate entity.” Cotten and his wife (now widow) Jennifer Robertson purchased a number of assets, including an airplane, a yacht and several properties. As a result, EY negotiated a voluntary preservation order on Robertson’s estate. EY says her assets may be worth CA$12 million.
Robertson herself is a secured creditor, after putting up a total of CA$490,000 in pre- and post-CCAA filing advances, according to EY’s report. (The money was needed initially to kick off the CCAA process.) EY anticipates the debt will be challenged. Of course it will!
Fintech and Whiteside
A few months back, EY learned about CA$254,180 that Quadriga had tucked away in a Canadian credit union and totally forgot about—it’s only money, after all. The account, which had been frozen since 2017, was held under Quadriga Fintech Solutions, but the money pertained to Quadriga’s (0984750 BC Ltd.’s) operations.
EY writes, “The estimated net realizable value of the account receivable from the Fintech Account is net of Fintech’s estimated bankruptcy administration costs.” Bankruptcy is apparently an expensive ordeal. As for Whiteside, it had no assets, so CA$25,000 was taken out of Quadriga’s disbursement account to fund its bankruptcy costs.
There are still questions as to what happened to CA$190 million of funds, mostly crypto, that has seemingly vanished from Quadriga. EY says it intends to file an investigative report by the end of June. Hopefully, that report will reveal more clues.
A lot is going on in cryptoland right now—most of it involves investigations, a New York Attorney General (NYAG) lawsuit and missing funds, but I don’t want to sound negative.
The destiny of all crypto exchanges is to be hacked, apparently. Last year, thieves stole $950 million worth of cryptocurrency from exchanges. So, in many ways, it’s not surprising to hear that Binance, the largest crypto exchange by volume, got hacked a second time.
Binance, all funds SAFU
Thieves looted more than 7,000 BTC from Binance in a single transaction. The hackers, however, are not free yet! They still need to move that $41 million worth of BTC into fiat, a feat that typically requires layering funds into smaller and smaller amounts (generally using a script of some sort), moving it through coin mixers, and then funneling it through various exchanges until they can exit into cash.
Thanks to blockchain, we can watch this money laundering happen real time. The first transaction out of Binance consisted of of 44 outputs. The hackers have since consolidated the bitcoin into seven addresses of mostly amounts. Now we wait.
For the first time in history, we can watch money laundering in real time. I can't think of anything more exciting. https://t.co/m9KVdtCO9U
After the hack, Binance suspended all deposits and withdrawals for seven days. Traders on the platform can’t dump their bitcoin—or their tether. If bitcoin were to crash, they would be trapped. Fortunately, bitcoin is not crashing—it’s pumping. As I write, bitcoin is now at $6,800, having shot up $1,000 within a week.
According to one expert, the boost is partially due to “a rare alignment of celestial bodies forged in an ancient supernova”—thus, number go up. Makes total sense to me.
Binance says it has an insurance policy—its SAFU fund—to cover losses on the exchange. Nobody knows for certain what is in that fund, because there has never been an outside audit, but Binance’s CEO CZ says they have enough bitcoin to cover the losses. Phew!
In a recent blog post, CZ also said the exchange is revamping its security measures, including its 2FA, API and withdrawal validation processes. Also, withdrawals and deposits should resume “early next week.”
Bitfinex’s legal woes
If you need to get up to speed with the Bitfinex and Tether saga, I covered the NYAG lawsuit in my previous newsletter. Robert-Jan den Haan also wrote a complete timeline of Bitfinex’s history with its third-party payment processor Crypto Capital.
We have podcasts, too. I discuss the Bitfinex drama with Sasha Hodder on HodlCast, and Robert talks about it with Laura Shin on her Unconfirmed podcast.
In response to the NYAG’s court order, Bitfinex submitted a motion to vacate. The NYAG filed an opposition, and Bitfinex responded. At a hearing on May 6, New York Supreme Court judge Joel M. Cohen called the preliminary injunction “amorphous and endless.” The prelim will stand, but he is giving both parties a week to sort it out.
Bitcoin was selling at a 6% premium on Bitfinex—a sign that traders are willing to pay more to get rid of their tether and get their funds off the exchange. The price of bitcoin on the exchange was so off-kilter that CoinMarketCap, a website that aggregates bitcoin pricing from top exchanges, stopped pulling from Bitfinex.
The Bitfinex premium disappeared when Binance halted withdrawals on its platform, Larry Cermak doubts it has anything to do with Binance though. He thinks it’s because Bitfinex started processing cash withdrawals again.
Twitter user “Bitfinex’ed,” disagrees. When bitcoins and tethers are stuck on Binance, that effectively reduces the supply and makes it that much easier to pump the market, he told me. He think prices will crash when Binance reopens withdrawals.
“I am lion, hear me roar”
Bitfinex has a $851 million shortfall due to issues with Crypto Capital. How is it going to fix that? Here is an idea: Why not just print more money?
The exchange’s latest plan is a token sale, or exchange traded offering (ETO), on its own platform. It will be selling a new token LEO—as in lion.
Earlier this week, iFinex, the parent company of Bitfinex, released a white paper outlining the business proposition behind the token offering. Each LEO is worth 1 USDT, which is worth $1 USD. This is not the first time Bitfinex has issued a new token to pull itself out of a financial mess. (It created a BFX token after it was hacked in 2016.)
Bitfinex shareholder Dong Zhao told CoinDesk that iFinex has received hard and soft commitments of $1 billion for the token sale. Perfect. That should definitely eleviate all of Bitfinex’s money problems.
Ernst & Young, the trustee for failed Canadian crypto exchange QuadrigaCX, released a preliminary report describing the company’s assets and liabilities. In a nut, Quadriga has US$21 million in assets, but owes creditors US$160 million.
Recently, Negocie Coins, a crypto exchange that you probably have never heard of, rose to number three on CoinMarketCap’s top exchange’s list sorted by volume. How is this even possible? Clay Collins, founder of market data company Nomics, made a video, explaining how crypto exchanges use ticker stuffing and volume spamming to game the system.
The FinCEN document has far reaching implications, such as, it appears Lightning Network (LN) operators qualify as money transmitters. Emin Gün Sirer says he is not surprised “given how similar LN is to hawala networks, and given the role hawala networks played in financing terrorism pre-9/11.”
To my reading, the document qualifies every LN operator as an MSB. Given how similar LN is to hawala networks, and given the role hawala networks played in financing terrorism pre-9/11, this is not surprising, but it's at odds with the community's expectations.
The US banking committee is concerned about Facebook’s attempt at a cryptocurrency—Facebook coin—and how the social media giant is treating people’s’ financial information. It’s published an open letter with questions for Facebook.
Part that stood out most to me? This line: "Last year, Facebook asked U.S. banks to share detailed financial information about consumers."
Redditor u/BioBiro, who needed to acquire bitcoin for a totally legal purchase, complains about the rigamarole he had to go through. Among other things, “Now there’s two pictures of me and my driving license on their server for the rest of time, I guess.”
Consensus, CoinDesk’s big money maker conference, kicks off in New York next week. Last year it had 8,500 attendees, pulling in ~$17 million in ticket sales—and that’s before sponsorships. Arthur Hayes, CEO of bitcoin derivative exchange BitMEX, was one of several who rolled up to New York Hilton Midtown in a lambo.
Previously, I wrote that Quadriga cofounders Michael Patryn and the now-deceased Gerald Cotten worked together for a period at Midas Gold, a digital currency exchanger that ran from 2008 until May 2013, when it was pulled offline. Now, it appears their connections stretch back even further.
According to data posted by Reddit user QCXINT, the two business partners appear to have been active on TalkGold, a popular forum for pushing high-yield investment programs (HYIPs), as early as 2003. Likely, that is where they first met. Evidence also suggests the two were active on BlackHatWorld, a site for discussing dubious marketing strategies for websites. Cotten also appears to have been a ponzi operator himself.
This is a long post, so here is a quick summary of what’s ahead:
Cotten likely began promoting ponzis in his teens.
He was posting on TalkGold under the username “Sceptre.”
At the same time, Patryn posted on TalkGold as “Patryn.”
Patryn and Sceptre joined TalkGold in 2003, within months of each other.
Patryn also posted as “Patryn” on MoneyMakerGroup and BlackHatWorld.
Sceptre first appeared on BlackHatWorld in 2012, but then changed his profile name to “Murdoch1337.”
Sceptre posted as “Lucky-Invest” on TalkGold to promote a ponzi.
What is a high-yield investment program?
HYIP is just another way of saying ponzi. These schemes typically promise ridiculously high rates of returns. But behind the scenes, no real investment is taking place. The operator simply uses money coming in from new investors to pay off earlier ones, all the while skimming money off the top for him/herself. When the supply of new investors runs out, the scheme collapses.
Ponzis are nothing new. The name stems from Charles Ponzi, an Italian immigrant who defrauded tens of thousands of Bostonians out of $18 million in 1920. Ponzi went to jail, and when he got out, the US promptly deported him to Italy. New York financier Bernie Madoff ran a $65 billion ponzi, the largest in history. He was convicted in 2008.
In the early 2000s, the Internet and the advent of early centralized digital currencies, like e-gold and Liberty Reserve, saw a new wave of ponzis. Operators anonymously set up their storefronts online and used e-currencies to obscure the source and flow of funds.
HYIP operators rely on social media and referrals to create hype and make their offerings appear legitimate. Despite the red flags, many people still invest in HYIPs, thinking that if they get in early enough, they can make a buck.
An entire subculture has proliferated around HYIPs. There are sites that track and monitor HYIPs, and forums, where people go to promote and learn more about HYIPs. There’s even an HYIP subreddit, in case you want to poke around.
When an HYIP scheme collapses—and they always collapse—the collapse is generally blamed on a hack, a theft, or a bad investment—some type of external event that is plausibly at arm’s length from the operator. When that happens, the HYIP operator begins issuing “refunds”—in good faith, of course.
Some HYIP operators even go to the effort of setting up long-winded spreadsheets, and paying back dribs and drabs over months. Of course, the first people to get paid back are usually insiders or the operators themselves, under different names, who then loudly proclaim what a great guy the operator is, and how decent it is of him/her to spend all their time and effort refunding everyone.
The U.S. Financial Industry Regulatory Authority (FINRA), the regulatory body charged with governing business between brokers, dealers and the investing public, writes that “virtually every HYIP we have seen bears hallmarks of fraud.”
TalkGold and MoneyMakerGroup
Starting in January 2003, TalkGold and sister site MoneyMakerGroup were two hugely popular Internet forums used to launch and promote HYIPs. The sites were pulled offline on August 21, 2017, a day after the U.S. Department of Justice (DoJ) filed an asset forfeiture complaint against Edward and Brian Krassenstein, the twin brothers that ran the sites. Homeland Security raided the twins’ Florida homes a month later.
“Since at least 2003, Brian and Edward Krassenstein … have owned and operated websites devoted to the promotion of fraudulent HYIPs. In particular, the Krassenstein run sites ‘talkgold.com’ and ‘moneymakergroup.com’ are discussion forums in which HYIP operators advertise and promote their fraud schemes to potential victims.”
“Patryn” on TalkGold
Michael Patryn, formerly Omar Dhanani, was arrested in October 2004 on charges related to his involvement with Shadowcrew, a cybercrime message board. Operating under the pseudonym “Voleur,” French for thief, he offered Shadowcrew members an electronic money laundering service—wire him cash, and he would fund your e-gold account, thereby adding a layer of anonymity to any purchases you planned to make.
After the Shadowcrew bust, TalkGold users began to speculate that “Patryn,” a prolific poster on TalkGold, was Dhanani—and there is good reason to suspect that he was.
“Patryn” joined TalkGold on April 3, 2003. His profile linked directly to VFS Network, a network for several digital currency exchangers, including Midas Gold, HD Money, and Triple Exchange—three that Patryn himself operated. VFS Network was also his business. (VFS stands for Voleur Financial Services.)
If that is not enough evidence, “Patryn” openly admits on TalkGold that he operates Midas Gold. The business registration for Midas Gold also lists “Omar Patryn” (one of Patryn’s known aliases) as its sole director.
Patryn also appears to have used the profile name “Patryn” on MoneyMakerGroup, with the same link to VFS Network. He joined MoneyMakerGroup on November 27, 2007, six months after he got out of a US federal prison, where he served 18 months related to his earlier Shadowcrew arrest.
Sceptre on TalkGold
Cotten was likely “Sceptre” on TalkGold. Sceptre joined TalkGold on July 4, 2003, three months after Patryn joined. Cotten would have been 15 or 16, at the time.
TalkGold members were able to list “friends” on the site. A May 2013 archivedprofile page for Patryn shows that he had six friends—one of whom is Sceptre. Similarly, a May 2013 archived profile page for Sceptre shows he had one friend—“Patryn.”
The two also interacted. Many of Sceptre’s TalkGold posts appear alongside Patryn’s in the same thread, either promoting or defending VFS Network, Midas Gold, or one of the other exchanges Patryn operated. (If you read my past article, there is also evidence to suggest that Cotten was the main operator for Midas Gold.)
On December 7, 2009, when a user on TalkGold complains that he is having issues with Midas Gold, Sceptre replies, “I’ve never had any problems with M-Gold. They are usually very efficient.” Patryn follows on the same thread with, “M-Gold does not work during weekends. What is your order reference number? I will have it taken care of ASAP.”
On September 29, 2012, “Patryn” responds to someone complaining about Midas Gold keeping their money. (This was not unusual, by the way. There were many complaints about Midas Gold withholding customer funds. See here, here and here.)
“To the best of my knowledge, both of us have been responding to your emails. You sent me five emails yesterday demanding that I hurry up and resolve this issue. Your issue will be resolved ASAP. Unfortunately, I cannot force the banks to speed up their investigation process.”
In the same thread, Sceptre replies to “Patryn,” almost mocking the customer.
“lol, I’m surprised you’re willing to help him. You offer your dispute resolution for free, and he thanks you by spamming your inbox and complaining that you don’t reply while you’re sleeping.”
In September 2012, a poster asks, “I am looking for a LR Exchanger into HD-Money.” (Basically, the poster wants to convert one digital currency, Liberty Reserve, into another, without having to go through fiat). Sceptre replies, “For this type of trade I would use ecashworldcard.” Patryn follows by posting a link to his HD-Money site, which lists Ecash World Card as an offering.
Cotten and Patryn on BlackHatWorld
BlackHatWorld is a forum where people go to discuss “black hat” marketing tactics. Paid shilling (paying someone to promote your product on social media), negative SEO attacks (improving your SEO ranking by destroying your competitor’s) and gaming a search engine’s algorithm are all topics of discussion on this forum.
These tactics are generally used by Websites that only plan to stick around long enough to make a quick financial gain, which is exactly what HYIPs aim to do.
Someone going by “Patryn” was also active on BlackHatWorld. This person joined on September 6, 2012, and was last active on September 7, 2017. He only posted 9 messages.
Another poster—”Murdoch1337″—in BlackHatWorld, was much more active. He joined on February 12, 2012, and his last activity was January 8, 2017. This person appears to have previously been posting as Sceptre, and we believe this was Cotten.
(QXCINT also tells me that one of Cotten’s email accounts—firstname.lastname@example.org, which was tied to a number of Cotten’s domain registrations—has or had an active account on BlackHatWorld, but the method he used was too technical for me to confirm independently.)
Murdoch1337 appears as the original poster in a thread titled “Sceptre’s Spectacular Content Services!!! – $1.50 per 100 words”—an indication that Sceptre likely switched his profile name to Murdoch1337 sometime after he started the thread. He responds to other posters in the thread as if he is the one offering the content services. “That’s all the review copies for now,” he writes. “For everyone else, feel free to place your orders using the order info in my original post.”
On September 10, 2013, Murdoch1337 posts an ad for a developer to help him with an upcoming cryptocurrency exchange. In the ad, he writes:
“I am looking for a programmer who is familiar with Bitcoin to develop a website that is very similar to Bitstamp…Also, I’m looking to get this project built and online quickly, so if you are able to do it quickly, that is a bonus.”
This ad was posted three months before Quadriga launched in beta. The timing makes sense given that Quadriga was was based on WLOX, an open-source exchange solution available on Github, which would have dramatically reduced the time it took to create a functioning crypto exchange. Alex Hanin built the Quadriga platform, though it is not clear if Cotten actually recruited Hanin via this ad on BlackHatWorld.
I’m looking for programmers who are knowledgeable when it comes to Bitcoin and I found you.
I have a number of projects that need work, including a new Bitcoin exchange. Are you able to build sites like this? If so, i’d like to get in touch
S&S Investments and Lucky Invest
One of Sceptre’s HYIPs was S&S Investments, a website that opened for business on January 1, 2004. (“Copyright @2004 Sceptre” is written at the bottom of the page.) He promotes the scheme as a way to double your money.
“You invest a sum of money into the program and within 48 hours (usually within 18) you will receive a return of anything from 103% to 150%, possibly more.”
He is sure to point out that this is “not what is called a ponzi or pyramid scheme.” It offers returns that are far better!
In case the first offer sounded a little too far fetched, he changes the text later to something only slightly more believable. S&S now becomes a “fixed term investment,” which pays 115% in a week….”you can invest and walk away in profit after just 7 days!”
Of course, S&S ultimately collapses, and discussion around it gets moved to the “Closed / Scammed Programs” section of TalkGold, where Sceptre continues to string along anxious investors, who continue to hold out hope for a “refund.” He writes:
“Refunds WILL take some time. I cannot guarantee that they will all be made quickly. The refund process is likely to spread over a long period of time, but I am willing to do my best to refund everyone to the best of my ability. Please be patient and you will receive a lovely surprise in your e-gold, a refund from S&S Investments,” Sceptre writes.
One TalkGold user reviewed what he considered to be the 12 biggest HYIP “scams” on TalkGold. This is what he wrote about S&S Investments:
“S&S Investments is an interesting program because it was operated by a ‘well known’ person in the HYIP arena. I use the quote marks, because this person was not well known at all, in fact he was very anonymous. No one knew his name, other than his nickname he used to post with, Sceptre. He used anonymous proxies, he was very well hidden. Yet because he had over 1000 posts on TalkGold, he earned a kind of pseudo-trust that people get from being very visible and always online.
Sceptre started off with a small little program that promised to pay back a large amount after a few days. It soon grew to become very, very popular, and it was not long before he upgraded to a fully automated script.
Sceptre wouldn’t tell people how he made the money, he just said that was his little secret. Virtually everyone invested into S&S Investments based on his post count on TalkGold. “He’s made a lot of posts on TalkGold, therefore he must be honest” seemed to be the general opinion of the investors.
S&S Investments went for sometime before cracks started to appear. First the website went offline, then was back again, but withdrawals weren’t being honoured, then the site went offline again. Finally, Sceptre made an announcement that S&S Investments were closed and refunds were to promised.
For a while, refunds did proceed, but then things started to dry up. Since the summer, no more refunds have been processed.
Hey, just because someone has thousands of posts on a forum, doesn’t mean he’s a trustworthy guy. Use your head, look at what the whole program is offering.”
In May 2004, Sceptre appears to switch to another TalkGold profile, “Lucky-Invest,” to promote a Lucky Invest HYIP.
At one point in a thread, he apparently forgets to log out of Lucky-Invest and continues responding as if he were Sceptre, until another poster calls him out:
“You forgot to sign in as ‘sceptre’. ohhhhhhhhhhhhhh . .. looks like Lucky-Invest changed their message!!! . . . too funny!!! . .. did you get caught Sceptre??? hahaha ;)”
“I’m not trying to hide. Lucky Invest, the Newest Investment/Game. My profits go to help pay refunds. THIS IS A GAME, IT WILL NOT HAVE ANY REFUNDS.”
This is a straight out admission that Lucky Invest was not an actual investment. It was a “game,” in other words, a fraud. When you give me your money, it is mine. There are no refunds in this game, just me sharing my profits.
Knowing that Cotten and Patryn did business together on TalkGold does not tell us where the CA$250 million worth of crypto and fiat that was on Quadriga went. (Only a fraction of those funds have been recovered so far.) But it certainly does bring up questions, such as, was Cotten really just a starry-eyed Bitcoin libertarian? Or was he a seasoned con artist, who had no qualms about taking other people’s money?
Did you enjoy this story? Become a co-conspirator. Support me on Patreon.
I am trying to make my news posts shorter with an effort to focus mainly on cryptocurrency exchanges, unless something else comes up that is just fun to write about. If you enjoy my stories, tips are always welcome via Patreon.
At a hearing on April 18, Quadriga’s court-appointed monitor continued its battle with the exchange’s third-party payment processors to get them to hand over transaction records and funds. The court also extended Quadriga’s creditor protection until June 28.
The stay (protecting Quadriga) is in place until June 28. The CCCA proceeding will expire at that point. It won’t be a “restructuring” any more. It’ll be a pure bankruptcy.
Craig Wright, who claims to be Satoshi, is suing people who are accusing him of not being Satoshi. (Wright has yet to prove he actually is.) As mentioned in my last newsletter, it all started when Wright sued twitter user Hodlonaut. Wright has now followed with libel suits against Bitcoin podcast host Peter McCormack, Ethereum co-founder Vitalik Buterin and crypto blog Chepicap. (CoinGeek, a publication financed by Calvin Ayre, Wright’s billionaire backer, has a full story.)
Craig has started filing lawsuit against those falsely denying he is Satoshi….they can all have a day in court to try to prove their fake case but the judge will rule that Craig invented Bitcoin because he did and he can prove it. https://t.co/d2W44mU9Tl
Naturally, the Bitcoin community is up in arms. In response, Binance—an exchange that has been traditionally unselective in the coins it lists—has delisted BSV (stands for Bitcoin Satoshi’s Vision), the coin that resulted from the bitcoin fork spearheaded by Wright and Ayre. The move was followed by several other exchanges delisting BSV, including Kraken, ShapeShift and Bittylicious. Blockchain.info removed support for BSV from its wallet.
Kraken’s BSV delisting was in response to a poll it put up on Twitter. This quote from Kraken founder Jesse Powell is priceless. He says:
“In this case, it is a unique case for us, we haven’t delisted any other coins because the founders, people who are promoting it turned out to be total assholes.”
Angela Walch, a law professor at St. Mary’s University School of Law, compared the #DelistBSV movement to Visa and PayPal not processing Wikileaks transactions and expressed surprise the crypto world was cheering it.
Thanks for all the comments! Yes, I know that exchanges are centralized and I know what people say about BSV.
From the outside, this looks an awful lot like a Visa/Paypal not processing Wikileaks transactions, so it's fascinating to see the crypto world cheering for it.
Crypto exchanges just aren’t pulling in the gazillions they used to. Binance generated about $78 million in profit last quarter, up 66 percent quarter-over-quarter. But that still falls short of full year 2018, when the exchange made $446 million in profits. Coinbase brought in revenue of $520 million in 2018, down 44 percent year-over-year.
2018 has been an absolutely brutal year for Coinbase. In mid-2018, they had projected $1.3 billion of revenue for 2018, which means they generated 60% less than they originally projected. Yikes. IPO prospects looking really bleak now
Hacks, inside jobs and irreversible goof-ups are pushing some crypto exchanges to the brink. Coinnest, once South Korea’s third-largest exchanges, is closing. Users have until April 30 to get their funds off the exchange. Coinnest lost $5.3 million in a botched airdrop in January, though it blames its closure on low trading volume.
Elsewhere, on April 10, Bittrex’s application for a BitLicense (required to do business in New York State) was rejected—in part, because Bittrex customers were using fake names, like “Give me my money,” “Elvis Presley” and “Donald Duck” to trade.
Bittrex says the NY Department of Financial Services (DFS) “sent four people who didn’t know anything about blockchain.” DFS responded again, saying the exchange “continues to misstate the facts” and “presents a misleading picture about the denial.”
if only they'd sent people who understood so much about Blockchain that they knew that "Donald Duck", "Elvis Presley" and "Give Me My Money" were legitimate customers
Binance is about to begin the process of moving its BNB (currently an ERC20 token) off the Ethereum network and onto Binance Chain, its custom blockchain. Interestingly, The Block’s Larry Cermak notes that Binance has quietly changed its white paper to remove a clause about the exchange using 20 percent of its profits to buy back BNB.
Arwen, a self-custody solution that uses on-blockchain escrows and off-blockchain atomic swaps to allow traders to maintain control of their keys while they trade, launched on Singapore’s KuCoin earlier this week. KuCoin raised $20 million in VC funding last year, and it is the first exchange to partner with Arwen, created by a company of the same name based in Boston.
Finally, Intercontinental Exchange (ICE), the owner of the New York Stock Exchange, is reportedly eyeing a New York license for its crypto exchange Bakkt. The launch date for Bakkt has been delayed for months due to skepticism from the CFTC. The regulator appears most concerned over how tokens will be stored.
POSConnect, a third-party payment processor holding funds on behalf of failed Vancouver-based crypto exchange QuadrigaCX, has come up with more excuses to delay handing over the money.
Today, at a short and mostly procedural hearing held at the Supreme Court of Nova Scotia, the main topics were extending Quadriga’s creditor protection and dealing with lingering issues related to Quadriga’s third-party payment processors, mainly POSConnect.
Justice Michael Wood agreed to extend the stay until June 28, unless Quadriga’s Companies’ Creditors Arrangement Act (CCAA) proceedings are terminated before then. Quadriga officially entered into a bankruptcy earlier this month.
The stay (protecting Quadriga) is in place until June 28. The CCCA proceeding will expire at that point. It won’t be a “restructuring” any more. It’ll be a pure bankruptcy.
The rest of the 30-minute proceeding was mostly taken up by a back-and-forth between POSConnect’s lawyer and Elizabeth Pillon, a lawyer for Ernst & Young, the court-appointed monitor in Quadriga’s CCAA procedures.
At issue, POSConnect is sitting on CA$281,000 of Quadriga funds. EY wants the payment processor to deliver CA$278,000 right away. The plan is to leave CA$3,000 to cover rolling monthly fees associated with keeping the account open.
POSConnect recently granted George Kinsman, EY’s senior vice president, online access to Quadriga’s documents and transaction data on the platform, and EY would rather pay POSConnect CA$500 a month than risk the firm cutting off all online access.
Pillon said more than 500,000 transactions worth CA$400 million in Quadriga funds were funneled through POSConnect—and sorting all that out is going to take time.
Meanwhile, POSConnect is reluctant to hand over any funds at all. The firm argues that it is due CA$22,000 in legal fees—an amount the POSConnect lawyer called “insignificant” compared to the hundreds of thousands of dollars spent so far in efforts to put Quadriga’s financial affairs in order.
EY is running short on patience. “POSConnect has thrown out more hurdles in respect to their obligation to delivers statements and property than any other third-party payment processor,” Pillon told the judge.
As she explained, EY has been reaching out to POSConnect since February 6 to find a means to get information and funds. Yet it wasn’t until late yesterday that POSConnect put forward $22,000 for legal fees and an administrative cost of $350 an hour to provide reporting—without providing any accounting to support those fees.
Justice Wood said he did not have enough information before him to determine what reasonable legal fees would be for POSConnect. POSConnect will be added to an existing order for other third-party processors, which will require another hearing anyway.
Wood expressed regret that he would no longer be overseeing the Quadriga proceedings. He has been promoted to chief justice of the Appeal Court of Nova Scotia.