Two law firms appointed to represent QuadrigaCX creditors

Screen Shot 2019-02-19 at 7.31.36 PMQuadrigaCX creditors now have a legal team to represent them in the crypto exchange’s Companies’ Creditors Arrangement Act (CCAA) proceedings.

Nova Scotia Supreme Court Judge Michael Wood appointed law firms Miller Thomson and Cox & Palmer to represent the more than 115,000 Quadriga creditors, who are owed a total of $250 million CAD. Most of that money— $180.5 million CAD—is stuck in cold wallets after the company’s CEO died in India. He was the only one who held the keys.  

To offer some background, a CCAA is a federal law in Canada that gives insolvent companies, such as Quadriga, time to restructure themselves and come up with a so-called plan of arrangement. It is not quite like a bankruptcy. A company can still operate and pay its employees during the proceedings.  

When Quadriga was granted creditor protection on February 5, the judge issued a 30-day stay, to keep any lawsuits at bay. The court also appointed Ernst & Young as a monitor to oversee Quadriga’s business and help Quadriga put together its plan of arrangement.

If that plan is accepted by the court and the creditors, Quadriga users will likely be able to recoup some of their losses more expediently. If the plan is rejected, the stay will be lifted, and creditors can forge ahead with their lawsuits.

In the case of Quadriga, because there are so many creditors, the court felt it appropriate to find them legal representation. Three teams of lawyer vied for that position on February 12. Justice Wood reviewed their credentials and made his final decision today.

In his ruling, he explained that he chose Miller Thompson/Cox & Palmer because both firms have extensive insolvency experience. In the coming weeks, Cox and Palmer, which has an office in Halifax, will take the lead on the civil procedure and court appearances, while Miller Thompson, which is headquartered in Toronto, will handle “project management, communication and cryptocurrencies.”  

The judge noted in his ruling that the firms’ proposal was “thought out carefully with a view to minimizing costs.” The team proposed an initial $250,000 cap on fees. They also said that they would communicate with creditors via social media, and that they would advocate for user privacy, something Quadriga users indicated was important to them. 

Appointing a representative counsel and a stakeholder representative committee in complex CCAA proceedings is not unusual, the judge said. Such measures are usually undertaken when the group of stakeholders is large and without representation, many of them would struggle to effectively participate in the CCAA proceedings.

He also agreed with Quadriga’s lawyer Maurice Chiasson and others that assembling a committee of users to represent the broader group of creditors was something that needed to happen quickly.

“The anecdotal evidence at the hearing is that many people are extremely upset, angry and concerned about dishonest and fraudulent activity,” he wrote. “There are reports of death threats being made to people associated with the applicants. All parties agree that this user group needs representation as soon as possible.”

Quadriga’s stay of proceedings expires on March 7. A hearing is planned for March 5 to update the court on what progress Quadriga and its monitor Ernst & Young have made.

Update: According to an email Ernst & Young sent to creditors, Quadriga will, in fact, seek to extend the stay of proceedings. The monitor writes that “the stay of proceedings may be extended for any period that the Court deems appropriate. There is no standard timeframe for the completion of proceedings under the CCAA.”

Ernst & Young is posting updates to the CCAA proceedings on its website.

News: Quadriga, Quadriga, Quadriga

The news keeps getting worse for QuadrigaCX creditors. The Canadian crypto exchange has apparently jettisoned another $468,675 CAD worth of bitcoin into deep space.

On February 6, literally, one day after Quadriga applied for creditor protection, the exchange “inadvertently” sent 104 bitcoin to its dead CEO’s cold wallet, according to an initial report released by court-appointed monitor Ernst & Young (EY).

When Quadriga CEO Gerald Cotten died in India on December 9, he carried into the afterlife with him the keys to the exchange’s cold wallets, where $180 million CAD—oops, make that $180.5 million CAD—worth of crypto is stored. Unless Cotten springs from the grave, any crypto in those wallets is as good as gone.

You have to scratch your head till it bleeds on that one. Why was anyone at Quadriga allowed to touch those coins after the company applied for creditor protection? EY is now moving to safeguard the remaining crypto, a stash now down to 51 bitcoin, 33 bitcoin cash, 2,032 bitcoin gold, 822 litecoin, and 951 ether, worth $434,068 CAD. So, yes, basically, more than half the money in the hot wallets is now gone.

[To get the full details on the history of the exchange, read my article How the hell did we get here? A timeline of Quadriga events.]

EY is also working to retrieve about $30 million worth of cash from nine Quadriga payment processors. So far, EY has yet to collect a dime, and one of the processors is stubbornly insisting that “it has the right to continue to hold funds in its possession pursuant to the terms of its agreement with the Applicants.”

Which payment processor would that be then? How about WB21? According to Robertson’s affidavit filed on January 31, WB21 is holding roughly $9 million CAD and $2.4 million USD of the exchange’s money. Even before EY took over, WB21 was “refusing to release the funds or respond to communications from Quadriga.”

A quick Google search reveals that WB21 has long been plagued by accusations that it is a scam. A year ago, Quadriga customers were complaining on Reddit that they were having trouble getting their wires from WB21. And, surprise, surprise, it also turns out, the U.S. Securities and Exchange Commission (SEC) is suing WB21’s CEO for fraud. (You can find the full SEC complaint here.)

Quadriga’s 115,000 creditors need proper representation. On February 14, three law firms appeared in court to vie for the position of representative counsel. Nova Scotia Supreme Court Judge Michael Wood said he plans to have a final decision next week.

All this legal stuff is getting expensive. So far, Robertson has put up $250,000 CAD of the $300,000 CAD she promised in her affidavit to fund the CCAA process. And the funds are being gobbled up quick. Quadriga’s lawyer Maurice Chiasson said the money will run out in two weeks, if not or sooner.

After that, where will the money come from? Likely, out of whatever funds EY pulls from those nine payment processors.

Meanwhile, more funny business is starting to surface. In her sworn affidavit, Cotten’s widow stated that she had no dealings with Quadriga prior to Cotten’s death. Yet, three Quadriga creditors (archive) claim they received wires from Robertson’s real estate company, Robertson Nova Property Inc. The wire transactions occurred in 2016 and 2017. This is interesting, given Jennifer only changed her name to Robertson in April 2017.

Screen Shot 2019-02-15 at 9.04.16 PMDid you know that if you wanted to cash out of Quadriga, you could opt to have actual boxes of cash dropped off at your door? That was an actual service (archive) Quadriga offered its customers. A few have suggested that the money may have come from bitcoin ATM machines that Quadriga operated.

Remember, Quadriga had no corporate banking. That is why, when you sold bitcoin for cash on the exchange or wired in money via one of Quadriga’s payment processors, your online wallet was credited with QuadrigaCX Bucks—not real bucks.

But who knew? I’ve been speaking to Quadriga creditors and some of them had no clue that the “CAD” they saw in their online wallets was basically Quad Bucks. 

“Everyone knows CAD equals Quad bucks now, but I didn’t know that until after the implosion,” one creditor who preferred to remain anonymous told me. “I guess it was in the terms [and conditions], but it wasn’t marked Quad bucks.” 

Some traders also told me that bitcoin sold for a premium on Quadriga. That meant, you could buy bitcoin on another exchange, such as Kraken, and then sell it for a profit on Quadriga. As an added incentive to move your crypto onto the exchange, Quadriga also offered free cash withdrawals, as long as you did not mind waiting two weeks or so for the money to hit your bank account. You had to pay a fee for express withdrawals.

Finally, the Globe and Mail (outline) sent its investigative reporters to India, where Cotten and his wife celebrated their honeymoon just before Cotten died. People are still wondering if his death was staged. “That Mr. Cotten did indeed die is a certainty among police and medical professionals in India, and The Globe reviewed hotel, hospital and embalming records that give no suggestion of anything abnormal,” the Globe writes.

But why was Cotten’s body taken from the hospital where he died back to the hotel where he had been staying? (According to Cotten’s death certificate, Fortis Escorts Hospital was the place of death.) Partly because of this, Simmi Mehra, who works at Mahatma Gandhi Medical College & Hospital, refused to embalm the body.

She told The Globe: “That guy [a representative from the hotel] told me the body will come from the hotel. I said: ‘Why the hotel? I’m not taking any body from the hotel, it should come from Fortis.”

The Globe and Mail report also reveals tragic details of the oft-overlooked Angel House orphanage that Cotten and Robertson sponsored. Apparently, the money they donated only paid for building materials. Several doors are still missing from the structure, including one to the toilet. And the operator of the orphanage is sinking into debt.

The orphanage appears to be yet another example of the wake of destruction that Cotten, who otherwise lived as though money were no object, carelessly left in his passing.

 

 

News: ETC hacker returns some of the money, Constantinople will have to wait, and a new twist in the QuadrigaCX saga

Stealing money is not easy. So why go to all the effort if you’re not serious? Screen Shot 2019-01-20 at 12.41.31 AM.png

Earlier this month, Ethereum Classic fell victim to a 51% attack when someone got hold of the majority of the network’s computing power and used it to double spend coins, stealing $1 million in funds. Now the hacker has returned some of the money. 

Gate.io, which originally lost $271,000 worth of ETC said the hacker returned $100,000 worth. And YoBit reported it got back $61,000 of $65,000 worth of stolen ETC. 

“We still don’t know the reason [for the return],” Gate.io said in a blog post on January 10. “If the attacker didn’t run it for profit, he might be a white hacker who wanted to remind people the risks in blockchain consensus and hashing power security.”

If you are a crypto exchange, you’re probably not seeing the profits you did back in the crypto heydays of 2017 and early 2018. So how do you make up for that? One option is to start listing lots of questionable coins. Another is to set the stage for the long-hoped-for influx of institution money.

Along those lines, Bittrex announced an over-the-counter (OTC) desk on January 14. The service handles trades of $250,000 or greater for the nearly 200 coins already offered by the exchange. In doing so, Bittrex joins other U.S.-based exchanges in launching OTC trading desks, including Coinbase and Poloniex.

Ethereum’s Constantinople upgrade has been delayed yet again. Shortly before the scheduled January 17 release, smart contract audit firm ChainSecurity found vulnerabilities in one of five ethereum improvement proposals (EIP). ChainSecurity describes the vulnerability in detail here. Ethereum core developers are now weighing late February as a time to move ahead with the upgrade—sans the buggy EIP.

A new twist has emerged in the saga of QuadrigaCX, one of the largest crypto exchanges in Canada. The saga began in January 2018 when the Canadian Imperial Bank of Commerce froze about $22 million in US dollars in an account opened by Quadriga’s payment processor. The majority of the frozen funds were released in December, but customers still aren’t getting their money.

Now, after waiting more than a month to post the news, Quadriga says that its CEO and founder Gerald Cotten is dead. Usually, when the CEO of a company dies, that is something you want to tell people right away.   

The announcement (archive) on the company’s website appears to come from Cotten’s wife, Jennifer Robertson, who explains that Cotten went to India to build an orphanage for needy children. While there, he died of complications to Crohn’s disease.  

“Gerry cared deeply about honesty and transparency — values he lived by in both his professional and personal life. He was hardworking and passionate, with an unwavering commitment to his customers, employees, and family,” Robertson wrote. [Emphasis mine.]

Several of Quadriga’s customers went to Reddit asking for proof of Cotten’s death. Some wondered how Cotten found time to travel to India when his company was in the midst of major litigation. 

Binance, one of the world’s largest crypto exchanges by trading volume, has launched a  fiat-to-crypto exchange in Jersey. A tiny 5-by-9-mile island in the English Channel, Jersey is one of the world’s wealthiest offshore tax shelters.

In October, Binance also set up a fiat-to-crypto exchange in Uganda. And it is planning to set up more of these entities in countries like Singapore, Malta, South Korea, Liechtenstein, Argentina, Russia, Turkey, and Bermuda.

Tron’s accelerator developer contest is looking like a big scam. The event was supposed to offer $1 million in prizes, with the first prize being $200,000. After the competition ended on January 4, developers took to Twitter and Reddit to complain that something “fishy” was going on. Apparently, Tron changed the prize amounts, and the main prize went to some vague company nobody has ever heard of.  

Brave browser, the project run by JavaScript creator and former Mozilla CEO Brendan Eich, claims that is is no longer fundraising on behalf of others, after releasing version 0.58.21 of the browser. David Gerard wrote an update and posted some pics of the new interface. If you get a chance, tip Gerard some BAT via his YouTube channel, so he can continue to test out the platform.  

Also, Brave browser has started allowing developers and testers to view ads. You can’t earn BAT for viewing the ads yet, but all that is coming. Eventually, Brave says, “users will then be able to earn 70% of the revenue share coming from those ads.”

The business model has gotten a ton of criticism. Essentially, the browser strips all ads and add trackers — which is how most publishing sites make their money — and then substitutes its own Brave-approved ads.

There’s been some important developments in the Tezos class-action litigation. Next up, likely the court will rule on whether the Tezos initial coin offering—which raised a record-setting $232 million in mid-2017—was an unregistered securities offering.

A ransomware threat known as Ryuk has pulled in $3.7 million in bitcoin over five months.

The Winklevoss Twins still think Bitcoin will be worth more than gold, maybe in the hopes they will be billionaires again. “The only thing gold has over bitcoin is a 3,000 year head start,” Cameron told Fortune.  

Brock Pierce, who got into cryptocurrency in the early days, and his wife Crystal Rose Pierce are expecting a child in March. They are naming the baby Crypto Pierce.

About 5% of daily Bitcoin transactions involve tether (USDT), according to a Medium post by Omni, the platform that tether operates on.  

Despite competition from a slew of new stablecoins, tether still dominates the stablecoin market, according to the latest report from CryptoCompare.

In case you missed it, I published a complete Tether timeline. I’m continuing to to update the story based on whatever new info I stumble upon. So keep checking back—and if you have information to add, send me details!