Crypto collapse: Bittrex files chapter 11, Binance loses market makers, FTX gets a tax bill, bitcoin gets apes 

  • By Amy Castor and David Gerard

Bittrex takes a dive

Bittrex’s US entity, Desolation Holdings LLC, and Bittrex Malta filed for Chapter 11 bankruptcy in Delaware on May 8. The move came just weeks after Bittrex shut down its US operations, which was soon after they were sued by the SEC for trading securities without registering as a securities exchange. [Bloomberg; Bittrex; case docket

The bankruptcy is apparently the fault of the SEC. The first-day declaration cites several SEC actions against other firms — and harps on about a “lack of regulatory clarity.” [Doc 9, PDF; first day declaration, PDF]

Bittrex says the bankruptcy will totally not impact its non-US operations, and funds are safe! Surely Bittrex didn’t do any commingling of company and customer funds like every other crypto exchange in trouble keeps turning out to have done.

The debts are largely fines levied against Bittrex by US government agencies — who are the only named creditors. OFAC is the largest creditor, owed $24.2 million. FinCEN is also a top 50 creditor with a $3.5 million claim. The SEC is listed with an undetermined amount of claims. [Doc 1, PDF]

Bittrex wishes to avail itself of a debtor-in-possession loan of 700 BTC so as to wind down Desolation and Bittrex Malta in an orderly manner and return customers’ funds. The loan will be from themselves — Aquila Holdings Inc, Bittrex’s parent entity, which is not in bankruptcy. [Liquidation plan, PDF]

The precedence of creditors (who gets paid back first) would be: themselves, then the customers, then the US government. That’s novel.

Michel de Cryptadamus notes several other interesting wrinkles. Bittrex’s US gross (not net) revenue for 2022 was $17 million, against the $30 million in government fines. “Several states alleged that BUS was undercapitalized and demanded that BUS immediately surrender its money transmitter licenses in those states.” Bittrex’s complicated corporate structure is reminiscent of FTX. And Bittrex may also be trying to protect the salaries of Bittrex executives from being seized by the SEC. [Twitter, archive]

Michel thinks the whole filing is a massive troll. We concur. The idea seems to be for Bittrex to set up a sacrificial entity to pay back their customers but stiff the US government. We are unconvinced that the government agencies will be inclined to let this one slide.

Good news for Binance

Market makers are leaving Binance US. Jane Street Group in New York and Jump Trading in Chicago — two of the world’s top commodities market makers — are pulling back from crypto in the US as regulators crack down on the industry. Their business in normal commodities is much larger, and they could do without the regulatory heat. [Bloomberg]

The Department of Justice is investigating Binance for possible violations of US sanctions against Russia. There’s already plenty of evidence that Binance has committed sanctions violations. Binance was the final destination for millions in funds from Bitzlato, an exchange shut down for money laundering. Now Dirty Bubble writes that Binance partner Advcash may be facilitating transfers from Russian banks. [Dirty Bubble]

Binance is withdrawing from Canada, owing to a surfeit of regulatory clarity. [Twitter, archive; Reuters]

Bitcoin has been trading at a premium of up to $650 on Binance US. A premium like this is usually an indication that people can’t get their dollars out of the exchange, so they buy bitcoins and move those to another exchange to cash out. [CoinDesk

We also saw bitcoin trading at a premium on Mt. Gox just before that exchange collapsed in 2014, and the same with QuadrigaCX, which imploded in 2019. Naïve traders who don’t understand what’s happening will often move their BTC to the dying exchange, thinking it’s an arbitrage opportunity.

Trading at a premium is not a good sign, but a worse sign is when people complain they can’t get their crypto off an exchange. Binance US has long had a reputation for demanding arbitrary new KYC documentation when users try to withdraw.

Monkey laundering comes to bitcoin

Binance paused withdrawals twice on Sunday, May 7. The first time was due to a “congestion issue.” Later in the day, Binance paused withdrawals again due to a “large volume of pending transactions.” [Twitter, archive; Twitter, archive]

For once, Binance might have been on the level. On May 7, the bitcoin mempool was clogged with 400,000 transactions waiting to be processed, and transaction fees surged.  

In bitcoin, the mempool, or memory pool, is where pending transactions pile up before a miner selects the most profitable ones and puts them together as a proposed block. If your transaction stays in the mempool too long, it gets dropped.

The best way to break a blockchain is to try to use it for something. In this case, some idiot worked out how to do NFTs on bitcoin.

“Ordinals” are a new way to create NFTs on bitcoin by linking a JPEG, video, or another image type to a satoshi, the smallest denomination of a bitcoin. Ordinals came out in January, and bitcoin has been filled with monkey pictures since. Bitcoin maxis condemn ordinals as a conspiracy to destroy bitcoin by using the network for a purpose. [Decrypt]

Child genius, adult moron

Sam Bankman-Fried’s defense team is trying to strike 10 of the 13 criminal charges against their client. They argue that the Bahamas did not agree to several of the charges — including one claim that Sam hid millions of dollars in political donations — while other claims didn’t meet the legal requirements of the underlying criminal statutes. [Docket, see filings 137-147]

The facts against SBF are solid. There’s no reason to doubt that Sam did everything the US claims. So the defense seems to be going for unreasonable doubt and hoping they have a dumb enough jury member or two.

Former federal prosecutor Sean Shecter of Lewis Brisbois says SBF’s lawyers want to preserve an appeal, so they have to try everything they can think of, “even if it involves throwing spaghetti against the wall.” He thinks the defense is likely hoping that the government gives up “nuggets of information” in response to the motions. [Law360, paywall]

Prosecutors have until May 29 to respond. Judge Lewis Kaplan will hear oral arguments on June 15. 

The IRS has hit the FTX companies with a $44 billion tax bill, with the largest chunk being $20.4 billion for Alameda. It looks like the IRS reclassified all FTX employees from contractors to employees and charged for unpaid employment taxes. [Docket, see filings April 27, 28; IRS Alameda claim, PDF; CoinDesk]

The IRS has not released its calculations in detail, but we’d assume the bill is inflated by fraud (fictitious profits), penalties, and interest. John Jay Ray is sure to fight this. But even if Ray gets that amount substantially reduced, this is still sure to be a huge hit for FTX creditors.

The IRS claims are treated as unsecured — but they will receive priority status as ordinary and necessary business expenses of the bankruptcy estate. So the IRS will come before ordinary unsecured creditors.

The searing light of regulatory clarity

Ishan Wahi will spend two years in prison for insider trading as a former product manager at Coinbase. He previously admitted to passing on confidential information from Coinbase to his brother and friend, who profited from the tips. [WSJ, paywall; DOJ press release]

In Estonia, nearly 400 VASPs (“virtual asset service providers,” the FATF term for companies dealing in crypto) have shut down or had their licenses revoked after the government’s recently enhanced terrorist financing prevention and anti-money laundering laws came into effect in March. [Protos; Estonia Financial Intelligence Unit

Bakkt has delisted a bunch of tokens from the institutional crypto business they bought from Apex Crypto, including several that the SEC has indicated it considers securities. “Our review process ensures those interests are best served when we contemplate the most up-to-date regulatory guidance.” [CoinDesk]

John Reed Stark thinks an SEC action against Coinbase is imminent. He explains the regulations and how they work in detail and why Coinbase doesn’t stand a chance.

Stark notes also that Coinbase’s “regulatory estoppel” claim — that the SEC approving their S-1 public offering means the SEC must have approved the exchange dealing in securities — is directly contradicted by the mandatory “no approval clause” in the S-1: “Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.” Whoops. [LinkedIn]  

Unvaxxed bitcoin is the new bitcoin

QuadrigaCX bankruptcy claimants will get 13% on the dollar. They will be paid out the dollar value of their crypto at the time Quadriga filed for bankruptcy — April 15, 2019, when bitcoin was in the toilet.

It’s amazing that creditors will even get back that much. Most of the Quadriga money was gambled away by cofounder Gerald Cotten and filched by shady payment processors. We’re surprised no criminal charges were filed — but then, most of the money was stolen by a guy who is supposedly dead. [EY notice, PDF; CoinDesk]

Arthur Hayes of BitMEX has been tweeting at Three Arrows Capital co-founders Su Zhu and Kyle Davies because 3AC owes him $6 million following its collapse in June 2022. Rather than returning Hayes’ money, 3AC cofounder Su Zhu has filed a Singapore restraining order to prohibit Hayes from using “threatening, abusive or insulting words” and “making any threatening, abusive or insulting communication, that would cause the Applicant harassment, alarm or distress.” [Twitter, archive; Twitter, archive; CoinDesk]

BlockFi users discover that BlockFi owned their coins. Bankruptcy Judge Michael Kaplan ruled that BlockFi users who had money in BlockFi’s interest-bearing accounts gave up ownership of their bitcoins — all they owned was a liability from BlockFi — and all of the $300 million in crypto deposits is now the property of the bankruptcy estate, as is normal. [Bloomberg]   

P2P exchange Paxful has resumed operations after it shut down last month amidst a messy dispute between cofounders Ray Youssef and Artur Schaback. The entire operation has been comedy gold. Youssef and Schaback say the exchange is now owned by a custodian — who they never actually name — and the custodian, Schabeck, and Youseff all serve as directors. [Paxful, archive; CoinDesk]

In the crypto bubble, Miami crypto companies boomed with the enthusiastic support of Mayor Francis Suarez. Now there’s empty real estate and lawsuits. “Most of crypto was a pyramid scheme,” said local businessman Ryan Kirkley. Suarez is now trying to lure tech startups into Miami instead. [WSJ, paywalled]  

Robert F. Kennedy Jr., who is running for US President on the gibbering insane Twitter blue check conspiracy theorist ticket, will be making the first appearance of his campaign giving the keynote at Bitcoin 2023 in Miami later this month. So, on brand then. [Twitter; NBC]

A propaganda movie is in the works for bitcoin mining — because consuming a country’s worth of electricity is actually good news for bitcoin. Based on the trailer, the film is amazing, but not in a good way. [Dirty Coin the Movie]

Media stardom  

Amy spoke to Bloomberg about the growing ranks of crypto skeptics after the crypto collapse: “There were a handful of us before, screaming into the abyss. Now there’s a lot more.” We’ll just be over here, quietly being right. [Bloomberg]

Crypto collapse: Exchange troubles, Binance’s friends with machine guns

David and I just finished an update on crypto exchanges. David posted it on his blog, so go check it out over there.

We’ve both covered QuadrigaCX, the Canadian exchange that collapsed in early 2019, in-depth. Over and over again, reporters asked us: “How could something like Quadriga happen?”

It happened because Quadriga had absolutely no oversight. Regulators barely knew Quadriga existed. Nobody in crypto cared while the charming Gerald Cotten was talking good news for bitcoin.

You should assume that exchanges will act against their customers in absolutely any way they can get away with. This is, after all, the historical behavior of crypto companies of any sort.

New QuadrigaCX documentary: ‘The Mysterious Disappearance of the Bitcoin Millionaire’

A new QuadrigaCX documentary is out, and I’m featured in it. “Rich and Shameless” is a seven-part documentary series — one new “true crime” story per week — streaming on TNT. [Warner Media press release]

Episode 4, which aired this week, is the Quadriga documentary: “The Mysterious Disappearance of the Bitcoin Millionaire.” [TNT]

The bitcoin millionaire is, of course, Gerald Cotten, the former Quadriga CEO, who died mysteriously in India just as his Ponzi was starting to crumble. 

Here’s one of the trailers for the 42-minute show. [Youtube]

Childhood friend Scott Geroux describes Cotten as a “ghost” in high school. Cotten kept to himself and didn’t really show his cards or what he was thinking. There were no pictures of him in the yearbooks, other than class pictures. He wasn’t in any clubs, didn’t do any sports, didn’t go to dances. 

I suspect that’s because good ol’ Gerry was running Ponzi schemes from a tender age on TalkGold, getting tips from his mentor Michael Patryn, the future cofounder of Quadriga.  

The production company for the film is RAW TV, the same production company behind “The Tinder Swindler.” RAW is based in the UK.

I did the filming for this on March 8, 2021. RAW staff didn’t travel to the U.S. for the film due to COVID. Instead, they hired film crews in various cities. I was interviewed by video from Los Angeles — where they rented an entire house. It was a long day of filming, but lots of fun. 

QuadrigaCX cofounder Michael Patryn resurfaces — as 0xSifu, treasury manager of Wonderland 

Michael Patryn, the early cofounder of failed crypto exchange QuadrigaCX, has returned to crypto. A convicted felon, Patryn slid out of public view after Quadriga CEO Gerald Cotten died in India, and all the news came out about Cotten running Quadriga like a Ponzi. 

In Patryn’s latest incarnation, he is 0xSifu, cofounder and treasury manager of Wonderland (TIME token), a DeFi protocol that runs on the Avalanche network.

ZachXBT posted the news in a Twitter thread early today:

“This needs to be shared. @0xSifu is the Co-founder of QuadrigaCX, Michael Patryn. If you are unfamiliar that is the Canadian exchange that collapsed in 2019 after the founder Gerald Cotten disappeared with $169m. I have confirmed this with Daniele over messages.”

Daniele Sestagalli is the founder of Wonderland, who fully admitted to keeping 0xSifu’s true identity hidden from the rest of the group for a month.

Sestagalli posted a response to the doxxing in a Twitter thread, saying he felt Patryn — who he called a friend and “part of my family” — deserved a second chance:

“Today allegations about our team member @0xSifu will circulate. I want everyone to know that I was aware of this and decided that the past of an individual doesn’t determine their future. I choose to value the time we spent together without knowing his past more than anything.”

Sestagalli also issued an official statement on, reiterating that he believes in second chances. And reassuring everyone all the funds are safe, even though a convicted fraudster is watching over them. TIME’s treasury balance, as of Jan. 27, is nearly $680 million.

“I found out about this 1 month ago, I am of the opinion of giving second chances, as I have mentioned on Twitter. I’ve seen the community very divided about my choice of maintaining him as the treasury manager after finding out who he was and his past,” he said.

He added that Patryn will step down from his position at Wonderland. And there will be a vote as to whether or not he rejoins the team. “Wonderland has the say to who manages its treasury not me or the rest of the wonderland team,” said Sestagalli.

Of course, it wasn’t until now, they were working with full information.

Wonderland is a fork of OlympusDAO, an obvious Ponzi, as pointed out by Coindesk, who literally wrote: “Yes, it’s a Ponzi scheme. But who cares?” The project promised an annual yield of 7,000%. Compare that to Wonderland, which is currently offering crypto lenders 83,000% APY.

In addition to Wonderland, Sestagalli is behind Popsicle Finance and Abracadabra. He also headed the now-defunct Zulu Republic. Members of the collective, call themselves, “Frog Nation.”

Sestagalli doesn’t like to tell people who his is or talk about his background. When asked about himself at a 2021 conference, he replied, “I’m a frog. I identify as a frog.” You can see him speaking here.

Who is Michael Patryn?

Patryn is former convicted felon Omar Dhanani, who legally changed his name to cover up his criminal past. Patryn left Quadriga in early 2016, after he and Cotten allegedly had a quarrel and split ways. 

Prior to founding Quadriga, Patryn was one of 28 people arrested in connection to operating an identity theft ring called Shadowcrew. He pled guilty and was sentenced to 18 months in a US federal prison. Upon his release, he was sent back to Canada, where he went right back to doing what he had been doing all along — moving money. 

Operating as a type of middle man, Patryn ran several exchangers for early digital currencies, such as E-Gold and Liberty Reserve, both widely popular among underground economies. 

Five years older than Cotten, Patryn was Cotten’s mentor, his big brother, and the controlling mind behind QuadrigaCX. The two had connections that went back to their early days on TalkGold, when Cotten was just settling into his career as a con man, running small time Ponzi’s and disappearing before they went bust. He died just as QuadrigaCX, a gold mine for the small-time con, was losing its wheels.

It should be of no surprise to anyone that Patryn has resurfaced again, or that he has found a trusting partner such as Sestagalli to kick off another business with.  

Patryn is a one-trick pony. He’s not clever enough to reinvent himself, and his hubris makes it impossible for him to simply disappear and go and enjoy a quiet life somewhere. 

MyCrypto founder Taylor Monohan, who was in the QuadrigaCX documentary Dead Man’s Switch, tagged Patryn’s wallet in 2019, after she herself lost money on QuadrigaCX. The wallet has remained active and shows transactions totaling 20 ETH to 0xSifu’s address, as Monohan points out on Twitter.

0xSifu’s wallet currently has $70 million worth of crypto in it. It’s been apparently offloading funds all day. Earlier, it held over $450 million worth of various coins.

If you like my work, please consider supporting my writing by subscribing to my Patreon account for as little as $5 a month. 

News: ‘Dead Man’s Switch’ streaming in US, Kazakhstan switches off the internet, volcano bonds, 6-hour rug pull 

Dead Man’s Switch: a crypto mystery, a film about failed Canadian crypto exchange QuadrigaCX, is out in the U.S. You can now stream it on the Discovery Channel

I’m in the film, along with fellow bitcoin skeptic David Gerard. You can read the reviews in the New York Times, the New York Post, and the Wall Street Journal. My picture is in the WSJ!  

I wrote a review of Jennifer Robertson’s book “Bitcoin Widow.” She was married to Quadriga CEO Gerald Cotten. Her book comes out Jan. 18, near the three-year anniversary of when she announced Cotten’s death to stunned investors—a month after he died! David Gerard also wrote a scathing review of the book, which you can find here

A new year has begun. I wrote up my crypto predictions for 2022. Like several other skeptics, I thought bitcoin would crash months ago. I still think it will crash. All the conditions are ripe for a crash. It’s just taking a little longer than we anticipated. 

Kazakhstan switched off the Internet

Amid anti-government protests, Kazakhstan—the world’s second biggest bitcoin mining hub next to the U.S.—switched off the Internet on Jan. 5. (Netblocks)

A few hours after the blackout, bitcoin saw a 12% drop in its hashrate. The incident shed light on how much bitcoin is being produced using fossil fuels. (Fortune)

Kazakhstan’s energy system has been struggling to keep up with increased crypto mining in the country, driven by the rise in bitcoin’s price and a rush of miners to its borders after China banned bitcoin mining last year. The electricity in Kazakhstan is some of the world’s dirtiest—70% coal-powered.

Countries that once welcomed crypto miners with open arms now want them gone because of the strain they put on their power networks. (Fortune)

After suffering blackouts, Kosovo recently banned crypto mining. Last month, Kosovo’s largest coal-fired plant closed due to technical issues, forcing it to import 40% of its electricity at higher prices. If it’s going to survive this energy crisis, the miners need to go. (BBC

Elsewhere, Iran is putting another moratorium on bitcoin mining. Argentina also recently went after bitcoin mining companies following blackouts. (La Politica Online, Spanish)

Volcano bonds

El Salvador, which adopted bitcoin as a national currency last year, is creating roughly 20 bills to serve as a legal framework to issue $1 billion bitcoin bonds, aka “volcano bonds.” 

Alejandro Zelaya, the country’s minister of finance, told El Mundo that the bills will cover regulations about issuing securities as cryptocurrency to ensure the viability of the bonds, which President Nayib Bukele originally proposed in November. (El Mundo, Spanish; Reuters)

Half of the $1 billion raised by the bond issuance will go toward buying BTC and half will be used to fund Bitcoin City, a crypto utopia at the base of a volcano. The idea is that the city will harness the geothermal power generated by the volcano for its electricity—ergo the term “volcano bonds.”  

Blockstream, the company responsible for a huge chunk of bitcoin’s code, along with iFinex—the parent company of stablecoin issuer Tether and crypto exchange Bitfinex—are partnering with El Salvador to create the volcano bonds. The bonds will be issued on Blockstream’s Liquid Network. Bitfinex will be the book runner for the bonds.  

Not only will Bukele destroy what is left of El Salvador’s economy with his insane plan, but he will attract hordes of scammers to the country. Bukele is, at this point, trading public bitcoin on his phone, and bragging about it on Twitter. David Gerard has a full update. (DG’s blog)

Binance up to its old tricks 

We learned a lot about Binance in 2021. Looks like nothing has changed.

Binance does not have a securities registration in Ontario. Yet, incredibly, after promising the Ontario Securities Commissions (OSC) that it would stop allowing Ontario residents to use its platform after Dec. 31, the crypto exchange turned around and told its users not to worry.

“As a result of ongoing and positive cooperation with Canadian regulators, there is no need for Ontario users to close their accounts by December 31, 2021,” Binance said in a letter to its users. It turned out Binance hadn’t spoken to any OSC staff at all. (Bloomberg)

Understandably, the OSC was pissed off. “This is unacceptable,” the regulator said in a statement. “Crypto asset platforms that have or will be applying for registration with securities regulators should be aware that misrepresenting their registration status raises concerns about the fitness of the firm and its principals for registration.” (OSC statement)

Binance blamed its actions on a “miscommunication.”  

In India, Binance-owned crypto exchange WazirX was busted for tax evasion. The goods and services tax authority in Mumbai says the exchange dodged paying Rs 40.5 crore ($5.4 million) in GTS.

WazirX lets you trade bitcoin in two ways: using Indian rupees or WRX, its native crypto. If a trader sells bitcoin for WRX instead of rupees, they pay lower fees. 

Binance figured it only had to pay GST on commission earned in rupees but could skip out on paying taxes on commission earned in WRX. A GST of 18% was applicable on these coins. At the end of the day, WazirX ended up handing over Rs 49.2 crore ($6.6 million), including penalties and interest. 

Zanmai Labs Pvt., which manages WazirX, told the media it was a mistake. The tax code was ambiguous. (India’s press information bureau, The Economic Times)

Samsung’s ‘groundbreaking’ new TV feature: NFT support  

You can now display your Bored Ape NFT on your 65” TV. Your guests will be so impressed. 

Samsung is offering extensive support for NFTs as part of its 2022 TV lineup—“the world’s first TV screen-based NFT explorer and marketplace aggregator, a groundbreaking platform that lets you browse, purchase, and display your favorite art—all in one place.” Basically it’s offering support for JPGs. What will technology think of next? (Press release, ArsTechnica)

The electronics maker has also opened up a metaverse store in Decentraland, an Ethereum-based virtual world, based on its flagship store in New York. (Press release, Decrypt)

The comments in the ArsTechnica coverage are gold. In response to the NFT TVs, one reader said:  

“Thank Christ. It’s really a colossal pain in the ass to display my NFTs now.

First I have to fire up Twitter and spend like 20 minutes laughing at the last guy who got scammed into transferring his token to some Nigerian prince.

Then I have to wade through the hundreds of good samaritans who are thoughtfully pasting my man’s lost ape into replies.

I have to find just the right one to save to my camera roll.

Then I have to wait like hours for my Canadian lingerie model friends to come over so we can talk about investment opportunities and that guy in Starbucks who made such a biting observation about student loan forgiveness that the whole place clapped.

Then I have to freaking cast my camera roll to the TV so that everyone there can really see and understand the rare variations in my apes. Which, really, is all I need a TV for in the first place.”

Six-hour rug pull

On Dec. 31, a new token called $YEAR was airdropped. It was set up as a “year in review” of your Ethereum transaction history. It quickly morphed into a painful lesson for investors. 

$YEAR came from a Twitter account called EtherWrapped. Users could connect their wallets and view a history of ETH and ETH NFT transactions over 2021. Then, EtherWrapped would hand out a token reward based on the user’s history. Several folks on Twitter warned that it was a honeypot.

The creator wasted no time. Six hours later, he pulled the rug on the project, draining 30 ETH from the $YEAR liquidity pool, and sending the token’s value to zero. Ladies and gentlemen, the future of finance!

Twitter user @meows.eth posted a thread explaining how the rug pull took place. (NFT Evening, Twitter)

Matt Damon is making everyone ill

Actor Matt Damon has hit peak cringe. The actor appeared in a Jan. 2 NFL Super Bowl ad—tagline “fortune favors the brave”—for, a crypto exchange and NFT marketplace. (Youtube)

In the ad, he struts about equating some of the greatest human accomplishments with buying shitcoins and NFTs of bored apes. His performance has sparked a backlash online. 

FT’s Jemima Kelly says “there is something grotesque about seeing a man whose net worth was recently valued at $170m shilling for a platform that is already making so much money that it can afford to spend $700m rebranding Los Angeles’ Staples Center as the Arena.” (FT)

Tim Draper still supports Elizabeth Holmes

A jury convicted Elizabeth Holmes of fraud on Jan. 4. As Bloomberg’s Matt Levine puts it: “Theranos raised a lot of money from investors who did not do too much due diligence, because the world was awash in money and investors got careless; that is much, much, much, much more true now, and Theranos looks a little quaint.” (NYT, Bloomberg)

Tim Draper—aka ”Bitcoin tie guy”—proves once again he is completely delusional. He is still supporting Holmes, even after she was convicted. He told Fortune: “This verdict makes me concerned that the spirit of entrepreneurship in America is in jeopardy.” (Fortune)

Unsurprisingly, Draper also supports President Bukele’s bitcoin efforts in El Salvador. “This is a great video from President @nayibbukele of El Salvador. He is a fresh face of visionary global politics speaking plainly and clearly about #bitcoin and #health at a time when most governments are flailing,” he tweeted, pointing to Bukele’s latest ad campaign. (Twitter)

Also in the news

Bitcoin is decentralized. Just 0.01% of bitcoin holders control 27% of the currency in circulation (WSJ)

Coinbase CEO Brian Armstrong spent $133 million on a Bel-Air eyesore. This is what happens when you have wads of money and no taste (WSJ)

In a last ditch effort to save “The One,” a Los Angeles real estate monstrosity he has spent over a decade creating, Nile Niami wants to launch “The One Coin.” I’m sure it is totally not a security. (LA Times)

Mozilla, the nonprofit behind the Firefox web browser, has paused accepting crypto donations following a backlash, triggered in part by a Mozilla founder Jamie Zawinski. (The Verge)

“Hi, I’m sure that whoever runs this account has no idea who I am, but I founded @mozilla and I’m here to say fuck you and fuck this. Everyone involved in the project should be witheringly ashamed of this decision to partner with planet-incinerating Ponzi grifters,” Zawinski tweeted.

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Quadriga’s trustee hires blockchain analytics firm

The search for what happened to QuadrigaCX’s missing money is a never-ending one. 

In the latest twist, Ernst & Young, the trustee in the Canadian crypto exchange’s bankruptcy case, hired an analytics firm to probe the blockchain for additional clues on where it all went. 

Miller Thomson, the law firm representing Quadriga’s former users, sent out a letter to Quadriga creditors on Friday, letting them know that on August 17, EY retained Kroll Associates “to conduct further analysis on a subset of transaction data.” 

The decision was guided in part by the “official committee,” a subset of Quadriga users who represent the exchange’s former users as a whole. The group has been working with EY since February collecting and reviewing proposals from third-party cryptocurrency­ asset tracing firms, Miller Thomson said.

Kroll, a division of New York-based financial consultancy firm Duff & Phelps, will not be tackling the project alone, however. It is joining forces with Coinfirm, a London-based blockchain analytics firm.

Kroll will receive up to $50,000 USD for their efforts. And EY has provided a contractual indemnity of up to $150,000 USD—three times the professional fees—to protect Kroll from any lawsuits or negligence claims. 

Crypto Capital

In its letter, Miller Thomson also noted that it appears Crypto Capital is not holding any of Quadriga’s money. 

Recall that back in January, Miller Thomson reached out to creditors asking for help in identifying if Quadriga had used the Panamanian third-party processor to funnel cash in and out of the exchange.

Crypto Capital is of interest because it is tied to crypto exchange Bitfinex, which is allegedly missing some $850 million. (I guess the hope was that some additional Quadriga money might have been tied up in all of that mess—and there would be more to reclaim.)

Disbursement of funds

So far, EY has located $35 million (CA$46 million ) to pay out to creditors. The amount represents a fraction of the total $190 million (CA$246 million) that went missing when the exchange went belly up early last year. 

As of May, EY has received 16,959 claims from the 76,000 or so users who held funds on the exchange when it collapsed.

Two things have to happen before those claims can be filled. The first is that EY has to review each claim individually, and that takes time and money.

But the bigger holdup by far is that the Canada Revenue Agency needs to complete its audit of Quadriga’s tax liabilities, said Miller Thomson.  

In March, the CRA collected a vast trove of documents from EY, and there’s no telling how long that will take to dig through, especially given current circumstances.  

“The CRA did not confirm a timeline of when the CRA Audit will be completed given the COVID­19 pandemic,” the law firm said.


My story in Decrypt: “QuadrigaCX CEO traded millions in fake funds to fund luxury lifestyle, alleges trustee”

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, clearly 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?

QuadrigaCX co-founder Michael Patryn is not mentioned in the report. According to what we’ve been told, 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’m in a podcast — “Why Won’t Amy Castor Just Shut Up About QuadrigaCX!”

Yesterday, I did a podcast with CoinSpice’s C. Edward Kelso. He turned it around fast, and the podcast was live a few hours later.

Kelso asked me about collapsed Canadian crypto exchange QuadrigaCX and also about legal threats made to me by WB21 (now Black Banx), the third-party payment processor holding $9 million in Quadriga funds, after I wrote about them.

WB21 has a history of threatening reporters, so this was nothing new. But after so much bad press, WB21 rebranded, and I wrote about that, too.

It is always a little overwhelming talking about Quadriga. The story is so long, involved and complex that it really belongs in a Netflix series.

This being my first podcast, I purchased a blue Yeti USB microphone and a pair of Audio-Technica ATH-M50x professional studio monitor headphones.

News: Quadriga’s law firm steps down, WB21 bullies another reporter, Tether admits it’s running a fractional reserve

Travel has been a bit exhausting lately, but my talk on QuadrigaCX at the MPWR Crypto Mining Summit in Vancouver, B.C. went well. If anyone wants to learn more about the events leading to the collapse of Canada’s largest crypto exchange, I’m told the video should be up within 30 days. I’ll post as soon as it’s available.

I’m also quoted in a BBC radio documentary on Quadriga. David Gerard and Frances Coppola are in there, too. I’m available for more talks on Quadriga and Bitfinex/Tether. If you are interested, send me an email, so we can line something up. 

I depend on reader support for the work I do. If you benefit from my stories and the resources I make available for free, please take a minute to subscribe to my Patreon account. Every little bit counts.

Now onto the news—first Quadriga. 

Stewart McKelvey, the law firm representing Quadriga in its Companies’ Creditor Arrangement Act (CCAA) has withdrawn amid concerns of a conflict of interest. What’s weird is that nobody outside of Ernst & Young (EY), the the court-appointed monitor, knows what the “potential” conflict of interest is exactly. 

The firm was also representing the estate of dead Quadriga CEO Gerald Cotten and his wife Jennifer Robertson. In and of itself, that does not necessarily represent a conflict of interest. I mean, EY would have known about this from the beginning, right? But some new info appears to have surfaced. I suspect the details will emerge eventually. We just have to keep waiting for those monitor reports to come out. 

Screen Shot 2019-03-18 at 2.58.12 PMYou recall my story on WB21, the payment processor holding $9 million in Quadriga funds? It seems like every reporter who has written about WB21 has received some type of threat—usually, a legal threat. (My story was also followed by threats on social media and email.)

Now a reporter has come forward saying that after he wrote a story on WB21, a thug appeared at his door. Totally unrelated, I’m sure. 

I’m surprised more media outlets have not covered WB21 in relation to Quadriga. But I suspect that will change soon—after all, $9 million is no small change. What I still don’t get is why Quadriga did not do due diligence before partnering with the firm. The internet is littered with people claiming to have lost money on WB21. This is one more example of how irresponsibly Quadriga conducted its business.

EY should be coming out with a fourth monitor report soon. I’ll be curious to hear if they’ve gained access to Cotten’s AWS account, which contains the platform’s historical transaction data. According to court docs, the Quadriga database was backed up hourly. (You would expect a lot more frequent backups for an exchange handling hundreds of millions of dollars in customer funds.) Also, I’m curious to learn more about the role of Quadriga’s new chief restructuring officer—and what his hourly rate is. (I’m almost certain I’m in the wrong business.) And has the representative counsel pulled together a committee of jilted Quadriga users yet? Until that happens, they have no voice to represent.

In a written statement on March 13, Robertson said that Cotten had mixed his private funds with those of the exchange’s. She wrote: “While I had no direct knowledge of how Gerry operated the business, he told me that he had been putting his own money back into QCX to fund user withdrawals in 2018 while the CIBC money remained frozen.” 

This is not new information. Robertson already mentioned this in her first affidavit, filed with the court on January 31. “Gerry told me that he was advancing his own personal funds in order to ensure that payments were made to Quadriga users,” she wrote. I can’t say what this means, other than more sloppy bookkeeping for EY to sort out. 

Reddit users claim that the Royal Canadian Mounted Police (RCMP) is collecting info on Quadriga. “They are suspicious and are coordinating with the FBI,” Reddit user “u/e_z_p_z-” wrote in quoting someone on Telegram. I contacted RCMP to verify, but they were tight lipped on the matter. “The RCMP is aware of the allegations against QuadrigaCX. We will not be providing any further information,” a spokesperson told me.  

Amidst the backdrop of the Quadriga fiasco, two Canadian financial authorities have published a consultation paper. The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIRO) are seeking input from the fintech community on how to shape regulatory requirements for crypto platforms. If you want to share your ideas, submissions are open until May 15.

I don’t think bitcoiners realize how broad of an impact the Quadriga mess will have on crypto markets. Exchanges are key to bitcoin’s liquidity, and exchanges need banking. If Canadian banks were leery of crypto-related funds in the past, now they will completely steer clear of the stuff. And my guess is regulators will do their utmost to make sure what happened at Quadriga (one guy managing gobs of other people’s money on his laptop from wherever he happened to be) never happens again—not on Canadian soil, at least.

In other crypto-exchange-related news, Tether, the company that issues the stablecoin of the same name, admitted that it is operating a fractional reserve. This has been widely suspected for a long time. Tether parted ways with its accountant in January 2018 (never a good sign), and it has never had a proper audit. Amazingly, despite this news, tether has not lost its peg and the price of bitcoin has remained unaffected.

David Gerard wrote a hysterical piece on Tether for DeCrypt“Every 24 hours, the entire $2 billion supply of tethers sloshes around 3.5 times, performing vital work for the market: completing the Barts on the price charts, burning the margin traders, and keeping the game of musical chairs going just that little bit longer,” he writes.

Bitfinex’ed, the pseudonymous tweeter and persistent critic of Bitfinex, unlocked his twitter account, so you can now retweet his tweets again.

[Read my Tether timeline to learn the full history of Tether and Bitfinex, the crypto exchange that it is linked to.]

Mark Karpeles, the former CEO of Mt. Gox, the Tokyo-based crypto exchange that went bust in 2014, was sentenced in Japan. Judges found him innocent of the major charges of embezzlement and breach of trust, but guilty of improper management of electronic funds. They gave him a suspended sentence of four years. Essentially, that means, as long as he stays out of trouble, he won’t go to jail and is a free man.

CBOE Futures Exchange (CFE), the first U.S. exchange to introduce a bitcoin futures product in December 2017, has decided to pull the plug on bitcoin futures trading.

Bitcoiners have long counted on a flood of institutional money to prop up the price of bitcoin—but it is just not happening. As the crypto markets began to tumble in 2018, CBOE saw scant trading volume on its bitcoin futures product. It also lost market share to Chicago Mercantile Exchange (CME) bitcoin futures, which launched the same month.

Trading volumes for bitcoin futures on both these exchanges pale in comparison to BitMEX, an unregulated exchange in Hong Kong, where you can gamble your bitcoin away at 100x leverage. (I wrote a story on BitMEX for The Block in January.)

More than six months since Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange, revealed its plans for a bitcoin futures market, Bakkt is still awaiting regulatory approval.

Elsewhere, the bear market continues to take its toll on crypto exchanges.

Trading volumes on Coinbase are dropping precipitously. The Block estimates that the U.S.-based exchange will make less than half the amount on trading commissions in 2019 than it did the prior year—if market conditions remain the same.

To make up for that, Coinbase is raising some of its trading fees. It is also listing more coins, the latest being Stellar Lumens. Stellar was started by Ripple co-founder Jed McCaleb, with lumens aimed at being part of a low-cost payment network. A bit of history here: McCaleb was the creator of Mt. Gox, which he later sold to Karpeles.

Bithumb, the largest cryptocurrency exchange in South Korea, plans to shed 150 of its 310 employees, according to CoinDesk.

And Hong-Kong based crypto exchange Gatecoin (not to be confused with crypto payment processor CoinGate) is facing liquidation. The story of Gatecoin reads like a series of Mr. Bill episodes. (Terrible things always happened to Mr. Bill.) After losing $2 million worth of crypto to a hack in 2016, the exchange hopped from three different banks only to have its bank accounts frozen at every one of them. Gatecoin gave up on the traditional banking system and turned to an unnamed French-regulated payment processor in September 2018. The firm returned the favor by keeping a large portion of Gatecoin’s funds. Now, a court has ordered the exchange to shut down.

You have to wonder if there isn’t more to this story. Why was this exchange booted off so many different platforms? Who was the payment processor that kept its money?


‘Platform error’ blamed for BTC being sent to Quadriga’s dead CEO’s cold wallet

Screen Shot 2019-02-21 at 3.02.45 AMThe 104 bitcoin (worth $468,675 CAD) that Canadian crypto exchange QuadrigaCX “inadvertently” sent to its dead CEO’s cold wallets on February 6—a day after the company filed for creditor protection—was due to a “platform setting error.”

That and other news was included in Ernst & Young’s (EY’s) second report, released on February 20. EY is the court-appointed monitor in Quadriga’s Companies’ Creditors Arrangement Act (CCAA). At least now we know that the bitcoin wasn’t sent by somebody clumsily pushing a wrong button. Still, that single automation wiped out more than half of Quadriga’s hot wallet funds.

The rest of the hot wallet funds, worth $434,068 CAD, are now safe from Quadriga. On February 14, EY transferred the coins into cold wallets that it controls. The funds include 51 bitcoin, 33 bitcoin cash, 2,032 bitcoin gold, 822 litecoin, and 951 ether. But all of this is a mere drop in the bucket compared to the $250 million CAD owed to Quadriga’s 115,000 creditors—most of which is presumably lost forever.

Also in the report: Recall that Quadriga elected a new board following the death of its CEO Gerald Cotten on December 9. The new directors included Cotten’s widow Jennifer Robertson, her stepfather Thomas Beazley and a man named Jack Martel, who nobody knew too much about. Apparently, Martel stepped down on February 11.

And more money is needed to fund Quadriga’s CCAA process. EY and Quadriga’s law firm Stewart McKelvey have already burned through the nearly $300,000 CAD Robertson put up to initiate the process in January.  

Additional money for the CCAA process—and ultimately for Quadriga’s creditors—will come from Quadriga’s payment processors, once they hand the money over to EY in the form of bank drafts. EY also has to get a bank to agree to accept the bank drafts, which is not an easy thing to do. Most banks want nothing to do with Quadriga’s money. 

Costodian, a company created by payment processor Billerfy specifically to manage Quadriga’s funds, is holding $26 million CAD in bank drafts. After the Canadian Imperial Bank of Commerce froze those funds in January 2018, the Ontario Superior Court of Justice took control of that money, and in December, released the funds back to Costodian in the form of bank drafts issued by the Bank of Montreal (BOM).

According to EY, Costodian has so far handed over four BOM bank drafts totaling $20 million CAD. But it is waiting for a court order before releasing two more bank drafts.

One of those is for roughly $70,000 USD. These are personal funds belonging to Costodian’s principal Jose Reyes. EY has determined that those funds do indeed belong to Reyes, but he still needs to sign the check over to EY for disbursement.

The other BOM bank draft in question is for $5 million CAD. Of that amount, Custodian claims that $61,000 CAD also represent Reyes’ personal funds, and that $778,000 CAD is due to Custodian for unpaid processing fees.

Quadriga creditors don’t agree that Costodian should be paid these fees. To resolve the issue, EY notes that “a separate dispute resolution mechanism will be required during the course of these CCAA proceedings.”

In addition, Stewart McKelvey is holding 1,004 in bulk drafts totaling $6 million. These drafts were issued to 1009926 BC LTD, a payment processor run by a former Quadriga contractor. The problem is 1009926 BC LTD was dissolved in January 2018 for failure to file an annual report, so EY is looking to potentially restore the company.

EY is currently negotiating with the Royal Bank of Canada (RBC), where it hopes to deposit most of these checks. RBC is proceeding with caution, however.

According to EY, “a stranger to the CCAA proceedings, RBC has expressed hesitation to accept and disburse the BMO drafts, bulk drafts and future amounts, without direction and relief from the court.”

A hearing is scheduled for February 22 to give direction to the banks and to the third-party payment processors, so the funds can be freed up.

After that, another hearing to extend the stay of the CCAA proceedings is scheduled for March 5 in Halifax, where angry Quadriga creditors are looking to stage a protestThe protesters are urging the court to discontinue the CCAA proceedings and launch a criminal probe into Quadriga.  

Update (February 21, 12:30 ET): I made some changes to clarify the amount of personal funds that Custodian principal Jose Reyes claims belong to him in two BOM bank drafts.

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: QuadrigaCX loses another $500K, more funds stuck on payment processors, details of Cotten’s embalming

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

When Quadriga CEO Gerald Cotten died in India on Dec. 9, he carried into the afterlife with him the keys to the exchange’s cold wallets, where $180 million CAD—now $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 a current value of $434,068 CAD. 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.)

Money stuck on payment processors

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 Jan. 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 it also turns out, the U.S. Securities and Exchange Commission is suing WB21’s CEO for fraud. (You can find the full SEC complaint here.)

Creditors need their own lawyer

Quadriga’s 115,000 creditors need proper representation. On Feb. 14, three legal teams 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 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.

Cash delivered to your door

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 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.

Details of death emerge

Finally, the Globe and Mail 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.

How the hell did we get here? A timeline of QuadrigaCX events


QuadrigaCX, the largest cryptocurrency exchange in Canada, has gone belly up, leaving 115,000 of its customers and all of Canada wondering, “What the hell just happened?”

Some $180 million CAD worth of crypto seemingly vanished when Gerald Cotten, the founder of the exchange, died in India at the age of 30, taking with him the keys to the exchange’s offline cold wallets—which, for Quadriga customers, essentially translates into “all of your money is gone.” The exchange’s customers are collectively owed $250 million CAD in both crypto and fiat.

As is often the case, it’s never a matter of what just happened. If you dig deep enough, you’ll find that the funny business—and there was plenty of it—started long ago.

I’ve cobbled together what I could find on Quadriga and assembled it into a timeline. But before we delve into that, let me introduce you to a few more characters.

Jennifer Robertson is Cotten’s widow, a woman he bequeathed all of his worldly belongings to shortly before his death. In addition to becoming the largest shareholder of Quadriga, she now owns a yacht, an airplane and millions of dollars worth of property—assets that hordes of jilted Quadriga customers feel they now have a right to.  

And then there’s Quadriga co-founder Michael Patryn. Some people—actually, a lot of people—believe Patryn is convicted money launderer Omar Dhanani who changed his name to disguise his criminal past after the U.S. deported him back to Canada. I am not saying Patryn is Dhanani. I’ll leave you, the reader, to draw your own conclusion. But I’d be remiss not to include Dhanani’s earlier dealings on my timeline.  

Also, a few words on how the exchange handled its banking. Quadriga had no company bank accounts. If you wanted to purchase crypto on the exchange, you would send fiat to one of Quadriga’s third-party payment processors via bank wire, Interac e-transfer or bank draft. Once your fiat was received, Quadriga would credit your account with QuadrigaCX Bucks, a digital stand-in for real dollars, Canadian or USD.   

According to the terms of service on the exchange’s website:

“All account fundings are considered to be purchases of QuadrigaCX Bucks. These are units that are used for the purposes of purchasing Bitcoin or other cryptocurrencies. QuadrigaCX Bucks are NOT Canadian Dollars. Any notation of $, CAD, or USD refers to an equivalent unit in QuadrigaCX Bucks, which exist for the sole purpose of buying and selling Bitcoin and other cryptocurrencies.

QuadrigaCX is NOT a financial institution, bank, credit union, trust, or deposit business. We DO NOT take Deposits. We exist solely for the purposes of buying and selling cryptocurrencies.”

Billerfy Labs, owned and operated by a man named José Reyes, was one of Quadriga’s payment processors. Under shell company Costodian, Reyes opened several accounts at Canadian Imperial Bank of Commerce, a top bank in Canada. Quadriga customers would send their money to one of these accounts.  

If you wanted to redeem your Quad Bucks, you would send a request to Quadriga. The exchange would then forward that request to Billerfy, which would aggregate withdrawals before moving large sums (say, $100,000 CAD) out of Costodian’s accounts at CIBC to an account held by Billerfy at another bank. And from there, Billerfy would wire the funds directly to you.

In a nutshell, this is how Quadriga moved money. It is also how the exchange got itself into a sticky situation during the crypto boom period of 2017-2018. That is when millions of dollars began pouring into Billerfy/Costodian accounts, arousing the suspicion of CIBC. Banks have to comply with strict anti-money-laundering policies. This makes them strongly averse to anything that looks like, well, money laundering.  

And with that, our story actually begins a decade and a half ago.


October 26, 2004 — The gig is up for 20-year-old Omar Dhanani. He is one of 28 people arrested in connection with Shadowcrew, an online bazaar for stolen credit and bank card numbers and identity information. These items were bought primarily with E-gold, a digital currency purportedly backed by real gold. Criminals were drawn to E-gold because it allowed them to transfer funds with little more than an email address.  

Working out of his parent’s home in Fountain Valley, California, Dhanani served as a moderator on the Shadowcrew forums. He also offered Shadowcrew members an e-money laundering service. Send him a Western Union money order, and for a 10% fee, he would filter your money through E-gold accounts, adding a layer of anonymity to any purchases you planned to make.

On Oct. 4, 2014, going by the pseudonym “Voleur” (French for thief), Dhanani boasted in a chat room that he moved between $40,000 and $100,000 a week, according to a U.S. Secret Service affidavit. He was also known to use the pseudonym “Jaeden.”

(At the time of Dhanani’s arrest, authorities seized $99,402 in USD, $1,858.86 in Western Union money orders, and a 2000 Mercedes Benz CLK320. Most of the cash was taken from the home of Alex Palacio, a reviewer on the Shadowcrew site, who later forfeited the money. But Dhanani later tries to get back the car, the money orders and $4,822 in cash, which was taken from his father’s bedroom.)

October 29, 2004 — After news of the Shadowcrew bust hits the streets, users on Ponzi-promotion forum TalkGold begin discussing the possibility that “Patryn,” a prolific poster on the forum, is actually Omar Dhanani. The majority of the so-called high-yield investment programs on the forum accepted E-gold.

After the Shadowcrew investigation wrapped up, investigators turned their focus on E-gold. In April 2007, the DoJ charged E-gold’s proprietors with money laundering and illegal money transmitting, pretty much spelling the end for E-gold. Nevertheless, E-gold paved the way for other digital currencies, including Liberty Reserve, to take its place in underground economies.

May 9, 2005 — The District Court of New Jersey sets conditions for Dhanani’s pretrial release, which includes a bond for $250,000. His parents, Nazmin and Nabatbibi Dhanani, post equity in their home with the clerk of the District Court for the Southern District of California.

May 18, 2005 — Dhanani is released from custody and free on bail until sentencing.

June 27, 2005 — In a civil forfeiture case related to the $99,402 in cash taken from Alex Palacio, Omar Dhanani and Omar’s father Nazmin, Omar appears to have changed his surname to “Patryn.” (The document reads: “Omar Dhanani aka Omar Patryn.”)

The government argues that the money was derived from proceeds of ID and access device fraud as well as money laundering and are therefore subject to forfeiture. The plaintiffs ask the judge to stay the case until Dec. 30, 2005. 

November 18, 2005 — Dhanani pleads guilty to one count of conspiracy to transfer identification documents related to his Shadowcrew arrest. According to court docs, the crime took place from August 2002 to Oct. 26, 2004. (US. DOJ, Indictment, Wired.) Note that Dhanani appears not to have faced charges for operating an E-gold exchanger. 

August 24, 2006 — A New Jersey judge sentences Dhanani to 18 months in federal prison and three years supervised release. He is also ordered to pay a fine of $1,000. The court recommends he participate in the Bureau of Prisons Inmate Financial Responsibility Program. (Judgement)

May 23, 2007 — Dhanani is released from prison. (He was likely credited for time served following his arrest in October 2004.)

April 4, 2008 — After the U.S. deports him to Canada, Dhanani returns to doing what he does best: moving money. He registers Midas Gold Exchange in Calgary under “Omar Patryn.” Soon after, Midas Gold launches at, offering digital currency exchange services.

Midas is a “pre-approved” money exchanger for Liberty Reserve, a Costa Rica-based digital currency service with its own digital currency, LR.

Users could buy LRs for $1 apiece and use them to pay anyone else who had a Liberty Reserve account. Generally speaking, if you wanted to buy LR, you had to go through a middleman, or so-called “exchanger.” M-Gold is such an exchanger. It buys LR bought in bulk from Liberty Reserve and sells LR in smaller quantities, charging 5% on every transaction. By using exchangers, Liberty Reserve was able to avoid collecting ID information on its users.

A number of Midas Gold Exchange customers are displeased with Patryn’s level of service. They register their grievances on

October 22, 2009 — “Michael Patryn” registers MPD Advertising Inc. in Vancouver, B.C. Nazmin Dhanani is listed as an officer—and we know Na MPD dissolves on Aug. 18, 2013. (Companies of Canada)

May 20, 2013 — Arthur Budovsky, the main man behind Liberty Reserve, is arrested in Spain and charged with running a $6 billion money-laundering enterprise. Cofounder Vladimir Kats is arrested in Brooklyn, N.Y. Other principals are nabbed in Brooklyn and Costa Rica. Three days later, the website is seized.

Shortly afterward, U.S. authorities seize more than 30 domains registered as Liberty Reserve exchangers in a civil forfeiture case. is one of them. According to court docs,  “the defendant domain names were used to fund Liberty Reserve’s operations; without them, there would not have been money for Liberty Reserve to launder.”

August 21, 2013 — Michael Patryn and his partner Lovie Horner register World BJJ Corporation in Vancouver. (BJJ stands for Brazilian jiu-jitsu, a form of martial art.) (Government of Canada)

October 31, 2013 — Liberty Reserve co-founder Vladimir Kats pleads guilty to money laundering and operating an unlicensed money transmitter business. (DOJ press release) 

While Liberty Reserve may be history, a new digital currency, Bitcoin, is making headlines. Unlike E-gold and LR, Bitcoin is decentralized, making it more difficult to shut down. In a 2015 YouTube video, where he is explaining plans to take QuadrigaCX public, Patryn claims he got involved with bitcoin in mid-2013—just after Liberty Reserve had been shut down.  

November 4, 2013 — QuadrigaCX is incorporated in Vancouver, B.C. (The actual operating company is 0984750 BC Ltd.) Patryn is a co-founder along with 25-year-old Gerald Cotten. A big hurdle for Canadian bitcoin exchanges is banking. (Affidavit)

In a later interview with Decentral Talk Live, Cotten explains how there was no easy way to buy bitcoin at the time:

“If you recall, back in the summer of 2013, there really weren’t many options here in Canada for people to buy and sell bitcoins…There was one exchange [Cavirtex] that was pretty much leading the pack….and then, other than that, you pretty much had to send a wire over to Japan [a reference to now-defunct bitcoin exchange Mt. Gox], if you wanted to buy Bitcoin…. You couldn’t hook up your bank account anywhere. It was just such a challenge.”

December 23, 2013 — Just before the platform launches, QuadrigaCX registers as a money services business with the Financial Transactions and Reports Analysis Centre of Canada, or FinTRAC, the country’s anti-money laundering watchdog. 

According to Bitcoin Magazine: “While it isn’t strictly required by law, such registration is perceived by banks as a sign of legitimacy, and registration has minimized the number of banking issues [Quadriga] has had to face.”

(FinTRAC doesn’t consider a virtual currency platform a money services business, but that will change on June 1, 2020, when new AML laws take effect.)

December 26, 2013 — QuadrigaCX launches in beta with a staff of five. Website architect Alex Hanin continues to oversee the maintenance of the platform via Connect Development Ltd, a business registered in the U.K. (Georgia Straight)

January 30, 2014 — Boasting 1,000 users, QuadrigaCX moves out of beta. In addition to listing bitcoin, the exchange plans to add dogecoin and litecoin. Cotten boasts that one of the main selling points of his exchange is that users can fund their accounts directly with Interact e-Transfers, a funds transfer service in Canada. “It’s the fastest way to get bitcoins in Canada,” he tells Georgia Straight.

Also on this day, Quadriga launches its first Bitcoin ATM. The Lamassu machine, which sells for $5,000 USD, is installed at Quadriga’s office at 332 Water Street in Vancouver. It’s a one-way ATM, meaning users can deposit cash to buy BTC, but they can’t sell bitcoin for cash on the machine. Cotten’s dream is to open Bitcoin ATMs all over Canada and link them directly to his exchange. (Georgia Straight, CoinATMRadar, YouTube)

“The plan with the ATMs is they’re going to be hooked up to our exchange. So, if someone makes a purchase from our ATM, it makes an equivalent trade on our exchange, which basically refills the ATM instantly. Our plan is to spread our ATMs around Vancouver and not just Vancouver—around the country,” he tells Georgia Straight.

Soon after, Quadriga advertises on its website that it is looking for partners to host Bitcoin ATMs on their premises. (Bitcoin ATMs generally charge high-transaction fees and offer a notoriously easy way for criminals to launder money, especially in Canada, where at this time, no KYC is required for transactions under CA$1,000 per day. It is easy enough to get around this limit, however, by going to to the same machine multiple times in one day.)

May 14, 2014 — In another bank workaround, Quadriga announces that it will accept gold. Users can deposit or withdraw funds from their Quadriga accounts in gold bullion. Patryn tells Bitcoin Magazine: “As we have a great deal of past experience with gold trading, it was not a particularly large leap to enable XBT/XAU trades on our website.”

(It’s unclear what past experience in gold trading Patryn is talking about here, unless he is referring to running E-gold exchangers, such as Midas Gold and the one he operated in 2004 while he was a moderator on Shadowcrew. While it is true, E-gold was purported backed by actual gold, the exchangers were middlemen, who sold E-gold for cash.)

Accepting gold also means that Quadriga now has to actually store the gold. Bitcoin Magazine writes (emphasis mine):

“Anything can be lost or stolen, of course, but QuadrigaCX is big on security. Nobody wants their funds gambled on a fractional reserve system, so all deposits are backed by gold held in their vault, which the directors have years of experience storing and securing. Full details on their storage system are obviously unavailable, but their known security measures are comforting: their office itself lies behind a barred entrance, and neighbors the office of their security company.” 

October 6, 2014 — Whiteside Capital Corporation, a shell company linked to QuadrigaCX, is incorporated in British Columbia. The bigger plan taking shape here is that Quadriga wants to go public via a reverse takeover, which is when a smaller private company buys a larger public company. Doing so requires Quadriga to reorganize itself. (Affidavit)

November 12, 2014 — Ancetera Networks LTC., another shell company linked to QuadrigaCX, is incorporated in British Columbia. Since the company’s only purpose is to hold shares, it also has no employees or contractors. (Affidavit)

January 26, 2015 — Ancetera Networks changes its name to Fintech Solutions. Lovie Horner is listed as an executive.  Other directors include Anthony Milewski, William Filtness and Natasha Tsai. (BC Laws, Bloomberg, Business Wire)

Fintech Solutions holds 40,748,300 shares. Of these, Cotten holds 16,800,000 shares (41.2%); Lovie Horner owns 4,200,000 shares (10.3%); and Crypto Group, a Hong Kong Company, of which Patryn is the sole director, owns 7,095,000 shares (17.4%). (Affidavit)

January 31, 2015 — Despite the positive media coverage, Quadriga is struggling. According to a company prospectus, the trading platform pulled in a mere $22,168 CAD in revenue in the quarter ending Jan. 31, 2015. The company’s net loss for the period was nearly $90,000 CAD. 

February 2015 — Unable to grow the company organically, Cotten and Patryn push forward with a plan to take Quadriga public. They raise $850,000 CAD in capital from Canadian brokerage houses Haywood Securities, Jordan Capital Markets, PI Financial, and Wolverton Securities.  

February 5, 2015 — According to a listing in S&P Global, Lovie Horner joins QuadrigaCX as VP of business development. She has a background in fashion design.  

February 23, 2015 — Two of Canada’s biggest crypto exchanges shutter, making Quadriga the largest in Canada. Vault of Satoshi closed on Feb. 17, and Cavirtex announces plans to wind down by March 25. (Bitcoin Magazine) Cavirtex ends up being absorbed by Kraken, a U.S. crypto exchange. 

March 3, 2015 – Quadriga officially announces its plans to go public in a reverse takeover of Whiteside Capital, a shell company set up in October 2014. 

In an episode of the #BlockTalk podcast, Patryn explains that a reverse takeover will eliminate the paperwork involved with getting listed the usual way—via an IPO. The exchange is set to trade under “Quadriga Fintech Solutions.” Public trading is expected to commence with the Canadian Securities Exchange by early April.

Quadriga boasts it will undergo a full financial audit by Wolrige Mahon LLP. “We’re excited to be able to provide an unparalleled level of transparency by merging legacy financial audits with innovative blockchain technology,” Cotten tells Bitcoin Magazine.

After the big announcement, things quickly go downhill. Quadriga burns through all of its investment capital, and Patryn brings a lawsuit against Robert Lawrence, the Vancouver businessman he enlisted to help take the company public.

Globe and Mail, which reviewed the court documents, writes:

“In Mr. Patryn’s telling, Mr. Lawrence failed to perform his duties properly and the company was never able to list. Mr. Lawrence raised a total of $850,000, of which $150,000 came from Mr. Patryn. But by June, 2015, the company had run out of money and lost 45 percent of its market share, according to Mr. Patryn’s statement of claim. Mr. Patryn said much of the money had to be spent correcting the “poor quality” of Mr. Lawrence’s work. Investors pitched in another $600,000, including $200,000 from Mr. Patryn, to keep the company from failing.

By February, 2016, Quadriga gave up on its plans to list and severed its relationship with Mr. Patryn, he said in court documents, owing to his perceived association with Mr. Lawrence. “News of his termination from QCX has materially and negatively affected his ability to secure similar work in the financial technology industry,” Mr. Patryn’s statement of claim read.

In a response, Mr. Lawrence denied the allegations and said Mr. Patryn approached him, not the other way around. Moreover, Quadriga’s failure was its own fault – and Mr. Patryn was the company’s “controlling mind,” he asserted. (Mr. Cotten is scarcely mentioned in the lawsuit.) Mr. Lawrence sought to have it dismissed. No filings have been made in the case since 2016. Mr. Lawrence could not be reached for comment.”

April 14, 2015 — With great enthusiasm, Quadriga renews plans to install Bitcoin ATMs across Canada. A fleet of new SumoPro two-way bitcoin ATMs is on its way from supplier BitXatm. Two-way, means users will be able to both buy and sell crypto on the machine. Quadriga says the new units will be delivered in batches of five in several major cities, including Vancouver, Toronto, and Montreal. (BitXatm tweet)

According to Bitcoin Magazine, QuadrigaCX already has more than 40 Bitcoin ATM machines across the country. And the plan was to add more. Journalist Christie Harkin writes: “Like most other independently owned bitcoin ATMs across Canada, these machines will trade on the QuadrigaCX platform. These new BitXATM machines also will be modified to allow for direct cash deposits and withdrawals from customers’ Quadriga CX balances.”

September 29, 2015 — According to SEDAR, a system for filing securities documents with Canada’s regulators, QuadrigaCX publishes its last “certification of interim filings.” In other words, its last financial audit.  

November 12, 2015 — Quadriga announces the formation of a blockchain R&D lab in partnership with Christine Duhaime, an “anti-money laundering expert,” according to her website. However, like past Quadriga projects, this one is long on hot air and short on follow through. According to a press release, the lab’s first task is to develop a “platform with two core functions: handling the onboarding and client data management for financial crime systems using the Blockchain and facilitating machine to machine (M2M) payments with Internet of Things (IoT) providers for connected cities.” 

(Note: According to an article she wrote for Coindesk in March 2019, Duhaime said she was hired in 2015 as the exchange’s regulatory attorney to help draft a statutory prospectus, meaning a legal document that describes a security to investors. She was terminated after six months, she said, “because QuadrigaCX executed a management hard fork overnight, which started the company down a path of lawlessness.”)

December 2015 — Cotten sets up the famed Chris Markay account on Quadriga. It is a fake account operated by him. Initially, Cotten funds the account with fake dollars and uses it to purchase real bitcoin from Quadriga customers. (OSC report)

February 29, 2016 — At this juncture, Patryn has supposedly left Quadriga and split ways with Cotten. The reason, he tells the Globe and Mail, is because he disagreed with Cotten’s decision to call off listing the company. Quadriga makes a passing mention on Reddit that Patryn is gone; otherwise, there is no formal announcement. On the heels of Patryn’s departure, Quadriga directors Anthony Milewski and Lovie Horner also resign. (Business Wire)

March 8, 2016 — QuadrigaCX is banned from selling securities altogether when the British Columbia Securities Commission issues a cease trade order. Apparently, Quadriga has not submitted a financial audit for the year ended Oct. 31, 2015. A “Management’s Discussion and Analysis” is also missing, according to the order. 

March 18, 2016 — Director William Filtness and Chief Financial Officer Natasha Tsai step down from QuadrigaCX. From here on out, Gerald Cotten is a one-man band, managing the majority of work from his laptop, wherever he happens to be. The servers are in the cloud on Amazon Web Services. According to court documents filed in January 2019, he also “took sole responsibility” for handling the exchange’s virtual currency.  

November 3, 2016— Quadriga enters into an agreement with Billerfy, a third-party payment processor run by José Reyes. (Interpleader order, archive)

November 30, 2016 — Quadriga allows its FinTRAC registration to lapse. (The exchange registered with the Canadian regulator in 2013, even though, according to laws at the time, it was not required to do so.)

February 2017 — Cotten registers an upscale Cessna 400. The plane’s market price at the time is about half a million Canadian dollars. Cotten is a pilot, but the airplane ends up sitting on the runway, barely used. While it only costs about $50 a month to tie down a plane at Debert Airport in Nova Scotia, Cotten was always behind on bills. (Globe & Mail)

Screen Shot 2021-03-03 at 12.31.35 PMApril 5, 2017 — Cotten’s partner, Jennifer Kathleen Margaret Griffith, changes her last name to Robertson. (Royal Gazette) 

According to CBC, she has also used the name “Jennifer Forgeron” in the past.

Nobody knows for sure why she changed her name to Robertson. 

June 2, 2017 — Quadriga announces on Reddit that it has lost some 67,000 ether worth $14.7 million USD due to a software glitch. The Ethereum contract is known, confirming the money is stuck in Cotten’s wallet, not stolen. The exchange writes:

“While this issue poses a setback to QuadrigaCX, and has unfortunately eaten into our profits substantially, it will have no impact on account funding or withdrawals and will have no impact on the day to day operation of the exchange.”

About this same time, according to court documents filed two years later, Quadriga’s “Chris Markay” account—an alias controlled by Gerald Cotten—is credited with $100 million fake bucks. 

July 18, 2017 — Despite his company’s recent financial setback, Cotten manages to register his 51-foot yacht, The Gulliver. The boat features three cabins, a six-person dining area , a dishwasher, a gas stove, a washer and dryer, an en-suite bathroom with a standing shower, along with a swim platform with teak battens.

Cotten bought the boat from Sunnybrook Yachts after telling the salesperson he wanted something that could take him to the Caribbean without having to stop in Canada or the U.S. for gas. (Vanity Fair)

Meanwhile, Bitcoin is in the midst of its biggest bull run yet. In mid-2017, one BTC was worth about $2,500 USD. By Christmas, it would be valued at eight times that. Yet, even as Quadriga was acquiring more customers, and making more money than ever on trades, there were signs of trouble brewing.

August 21, 2017 — Quadriga customers begin reporting delays in getting cash off the exchange. (What they see in their accounts are Quad Bucks, a stand-in for fiat money. But many Quadriga customers don’t know this.) In emails with clients, Cotten blames the “Canadian banking cartel” for the wire delays, saying they are out to “stifle bitcoin adoption” in the country. (Globe and Mail)

September 26, 2017 — On behalf of Billerfy, the payment processor he operates and that services QuadrigaCX, José Reyes applies to open three commercial banking accounts at the Canadian Imperial Bank of Commerce’s Beaver Creek Branch. (Interpleader order)

September 27, 2017 — Reyes visits the CIBC Bayview Village Branch, and opens personal checking, savings and U.S. dollar accounts. (Interpleader order)

November 28, 2017 — CIBC’s anti-money laundering department reviews Reyes’ account opening documentation at the Beaver Creek Branch. After the bank learns that Billerfy is a money service business, it closes the accounts. (Interpleader order)

November 30, 2017 — Reyes applies to open two small business banking accounts at CIBC’s Bayview Village Branch on behalf of Costodian, a shell company he set up to open accounts under. One is an “expense account,” the other is a “transaction account.” Reyes tells CIBC that Costodian is “[n]ot related to Billerfy’s CMO business.” (Interpleader order)

December 17, 2017 — After a spectacular run-up, bitcoin reaches an all-time high of nearly $20,000 USD. In 2017, $1.2 billion USD worth of bitcoin traded on Quadriga. The exchange took a commission on every trade. (But as court docs reveal, Quadriga kept no books, had no formal record of accounting, and business and customer funds were all mixed together.)

December 4 – February 20, 2018 — At the height of the crypto bubble, tens of millions of dollars flood into the bank accounts that Reyes opened up at CIBC to collect Quadriga funds. In three months, 388 depositors make 465 deposits to Costodian’s “transaction account” in the total amount of $67 million CAD. (Some of the money is eventually withdrawn, leaving roughly $26 million CAD.)

December 22–28, 2017 — Reyes transfers $2.3 million CAD from Costodian’s “transaction account” to his personal checking and savings accounts. He admits to CIBC he did not notify Quadriga prior to transferring the money to his personal accounts. From here out, the bank takes a hands-off approach to those funds. (Interpleader order)

January 8, 2018 — CIBC is unsure of who the $26 million CAD belongs to, so it freezes two accounts belonging to Costodian and José Reyes. In an interpleader order, the bank asks the justice system to take possession of the funds and decide who they belong to—QuadrigaCX, Costodian or the depositors. Cotten fights back, claiming CIBC had no right to freeze the funds. Quadriga has already credited depositors with Quad Bucks, he says.   

In 2018, the bitcoin bubble bursts. According to official reports, by the end of 2017, there were some 20,000 fake bitcoin on Quadriga. Clients have no idea they have been paying cash for fake crypto. As market prices plummet, when customers go to sell their bitcoin, Cotten struggles to come up with the money to cover it. The issues with CIBC only compound the problem.

February 8, 2018 — According to the Globe and Mail, a new company, 700964 NB, is registered in New Brunswick as “part of a network of entities that helped move millions of dollars around so Quadriga could take deposits and facilitate withdrawals, sometimes in the form of physical bank drafts, for its clients.” Aaron Matthews, Quadriga’s director of operations, and Sarah-Lynn Matthews, his wife, are listed as owners, but the address on the registration leads to a rickety trailer in a mobile home park.

February 16, 2018 — CIBC is still trying to sort out who the $26 million CAD belongs to. The bank asks Jose Reyes (the person who controls the frozen accounts) if it is okay to speak to someone at Quadriga. Reyes says no, because Cotten had indicated that he was not interested in speaking with anyone at CIBC. (Interpleader order)

March 6, 2018 — Reyes finally gives CIBC the okay to contact Cotten directly. (Interpleader order)

March 15, 2018 — CIBC dashes off an email to Cotten asking to speak with him briefly by phone. Cotten declines and requests that CIBC only send him questions in writing. (Interpleader order)

March 21, 2018 — CIBC emails Cotten questions regarding the relationship of Quadriga with Costodian/Billerfy and the depositors and Quadriga’s entitlement to the disputed funds. Neither Cotten nor anyone else from Quadriga responds. (Interpleader order)

Screen Shot 2021-03-04 at 7.28.02 PMMeanwhile, Quadriga clients start complaining on Reddit that their cash withdrawals are delayed. 

July 2018 — In the midst of all this, Michael Patryn is working on cleaning up his reputation. He hires to remove negative content about him on, where he is referenced as a money launderer. Patryn later sues for not moving fast enough, according to the Globe and Mail, who reviewed the court documents.  

October 8, 2018 — Cotten and Jennifer Robertson get married, according to several Reddit posters who claim they saw Robertson’s Facebook page. (The Globe and Mail earlier reported the wedding was in June. However, the OSC report also confirms the wedding was in October.) According to the OSC report, it was a small private ceremony in Scotland. 

November 9, 2018 — The Ontario Superior Court grants CIBC an interpleader order allowing the court to take control of Custodian’s $26 million CAD—which it is holding on behalf of Quadriga—until the ownership of the funds can be established. (CoinDesk.)

November 27, 2018 — Cotten signs a will, leaving all his belongings to Robertson, including several properties, a 2017 Lexus, an airplane, a 2015 Mini Cooper and a 51-foot Jeanneau sailboat. He goes a step further and details the distribution of his assets should Robertson not survive him, even specifying that $100,000 CAD goes to his two chihuahuas, Nitro and Gully.

After some digging, CBC learns that Cotten’s widow has a company called Robertson Nova Property Management, which was incorporated in June 2017. Between May 2016 and October 2018, Robertson, her husband and her company bought 16 properties worth $7.5 million CAD. The properties range from $94,000 CAD for a waterfront lot in Lunenburg County to $2.5 million CAD for nine row houses in Bedford.

“Little is known about Ms. Robertson, who appears to have used three different surnames since she began buying real estate in Nova Scotia with Mr. Cotten in 2016,” reports Globe and Mail in February 2019.

November 30, 2018Cotten and wife Jennifer Robertson arrive in New Delhi, India. They have come to the country to celebrate their honeymoon and participate in the opening of an Angel House orphanage they sponsored. (Globe and Mail)

December 3, 2018 — Physical cash pickups up to $2,500 are now available for Quadriga customers. Quadriga states on Reddit (archive): “We have partnered with selected stores to provide local cash pickup — as we have just started exploring this new method, only one store in Montreal, QC has been set up at the moment. We have another store going live next week in Cornwall, ON and hopefully many more.”

December 4, 2018 — Quadriga announces that the Ontario Superior Court is releasing the Costodian funds, which CIBC held “hostage.” Quadriga writes on Reddit (archive): “According to our counsel, the funds should be paid out by the end of this week.” However, new problems arise when the court issues the funds back to Costodian in the form of bank drafts, which Custodian has trouble depositing. No bank will touch the money. 

(By this time, according to official reports, Cotten has lost a total of $115 million CAD trading on the platform by trading with fake assets. So far, he has covered those losses with customer money. Now, with another $26 million CAD that has become inaccessible, he is running out of time. His Ponzi is collapsing.)

December 8, 2018 — At 5:15 p.m. Cotten and Robertson land in Jaipur, India, where they plan to spend four nights at the Oberoi Rajvilas for $923 CAD a night. Soon after the couple check-in, Cotten gets a bellyache. At 9:45 p.m., he checks into Fortis Escorts Hospital. He spends the night at the hospital in a private room. (Globe and Mail) 

December 9, 2018 — Cotten’s condition deteriorates. At 7:26 p.m. local time he is declared dead due to complications of Crohn’s disease. The cause of death is cardiac arrest. Robertson withholds the news from Quadriga customers for more than a month. Meanwhile, the exchange continues to accept deposits. (Globe and Mail, Affidavit)

December 10, 2018 — Dr. Simmi Mehra, who works at Mahatma Gandhi Medical College & Hospital, refuses to embalm Cotten’s body, in part because the body was coming from the hotel where Cotten had been staying—not Fortis, the hospital where he died. Most bodies are brought to her by ambulance, she said. Additionally, she is uncomfortable with the lack of detail and documentation surrounding the death.

December 10, 2018 — Cotten’s body is then taken to SMS Medical College, which issues an embalming certificate. Sangita Chauhan, who heads the anatomy department there, does not actually see the body. Instead, a junior staffer handles the processing. The body is picked up by staffers at Oberoi, the hotel where Cotten and his wife were staying. (Globe and Mail)   

December 10, 2018 — Robertson checks out of the Oberoi and heads back to Canada “with the body,” according to the Globe and Mail. She arrives in Halifax the following day. 

December 13, 2018 — Cotten’s death is registered with the Government of Rajasthan Directorate of Economics and Statistics in India. “The death certificate, obtained by The Globe, lists his “address at time of death” as the Oberoi Rajvilas.” However, a death certificate, later obtained by CoinDesk, lists his “place of death” as Fortis Escorts Hospital. 

December 13, 2018 — The Angel House orphanage that Cotten and Robertson funded opens in Venkatapuram, India. The money the couple donated only paid for materials. The building is still missing several doors, including one to the bathroom. And the man running the orphanage is going into debt. 

December 14, 2018 — A closed-casket funeral service is held for Cotten at J.A. Snow Funeral Home in Halifax, Nova Scotia. He is buried that day. (Reddit)

Meanwhile, withdrawals from Quadriga have all but ground to a halt. Reddit /r/QuadrigaCX has become awash with people complaining they cannot get their money out of the exchange. (David Gerard)

January 14, 2019 — Quadriga finally lets the world know that its CEO is dead. Cotten’s widow posts an announcement on the Quadriga website explaining that Cotten passed away in India while opening an orphanage. To quell any suspicions that he ran off with everyone’s money, she bestows her husband with a host of virtuous qualities:

“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 recommends that Quadriga’s head of operations, Aaron Matthews, assume the role of interim president and CEO. Matthews later denies he was CEO. (Tweet)

Meanwhile, Quadriga’s customers are now having trouble getting their crypto out of the exchange. Unlike cash, which has to go through a third-party payment processor, crypto should move directly from the exchange to the customer. This leads to concern that maybe the crypto funds aren’t actually there.

Screen Shot 2020-07-13 at 9.54.19 PMJanuary 22, 2019 — Robertson sends a petition to the Supreme Court of British Columbia requesting a shareholder meeting to appoint new board members to Quadriga Fintech Solutions because, effectively, the company has no board. Per the petition, the owners of QFS are Cotten (43%), Lovie Horner (11%), and Mike Patryn (who had purchased most of the rest), with some other minor shareholders.

January 25, 2019 — It’s Friday. Quadriga holds a shareholder meeting. Robertson, her stepfather Thomas Beazley, and a man named Jack Martel are appointed as new directors. They decide to suspend Quadriga’s operations but hold off on sharing this news with Quadriga customers. (Affidavit)

January 26, 2019 — The newly appointed directors instruct that the platform be paused. According to an affidavit Robertson files with the court on Jan. 31, “The pause will mean that future trades of cryptocurrency will be temporarily suspended, including the settlement of cash or the trading of currency between users.”

January 28, 2019 — All weekend long, anxious Quadriga customers wait to hear some news. On Monday, they awake to find a large notice on the exchange’s website indicating the site is down for maintenance. (CoinDesk)

January 29, 2019 — Cotten’s widow moves to protect her property. According to the Chronicle Herald, at the end of January, “Robertson took her deceased husband’s name from the ownership of four properties, worth a combined $1.1 million [CAD], then took out collateral mortgages on all four in favour of a trust of which she is a trustee, and finally transferred ownership of at least two of those properties to that trust.” The name of the trust is the Seaglass Trust.

January 31, 2019 — Quadriga’s anxious customers still don’t know what is going on. The exchange’s website remains in “maintenance mode” for three nail-biting days. Then a new notice appears on the site, basically stating Quadriga customers’ worst fears: the exchange is bankrupt. Quadriga’s board members have applied for creditor protection with the Nova Scotia Supreme Court. A preliminary hearing is set for Feb. 5.

Buried in the notice is more alarming news. Quadriga is scrambling to locate the keys to its cold wallets. Most exchanges typically keep the majority of their crypto in offline “cold” wallets for security reasons. The situation is akin to a bank misplacing all of its money—or worse, the money getting stuck in a vault and the only person with the key is dead. 

February 5, 2019Maurice Chaisson, a lawyer with Stewart McKelvey, represents Quadriga in a Nova Scotia court for its creditor protection hearing. The court appoints Ernst & Young as a monitor in charge of tracking down the $250 million CAD, in cash and in crypto, collectively owed to Quadriga’s customers. The exchange is granted a 30-day stay, meaning its clients are unable to sue the exchange in that time. (CoinDesk) 

Quadriga updates its website with a new announcement and a Q&A explaining what it means to file for creditor protection under the Companies’ Creditors Arrangement Act. 

February 5, 2019 — With keys to the exchange’s cold wallets supposedly gone missing, many are wondering if Cotten staged his death. CoinDesk posts a death certificate with Cotten’s name misspelled “Cottan.” Apparently, fake death certificates are easy to come by in India.

February 7, 2019 — Fortis Escorts, the hospital in Jaipur, India where Cotten passed, releases a statement confirming his death. Cotten arrived at the hospital in a “critical condition” with “pre-existing Crohn’s disease and was on monoclonal antibody therapy every 8th week.” He was diagnosed with septic shock and other horrible things. (CoinDesk)

February 8, 2019 CoinDesk reports that crypto funds were moving through the Quadriga platform up to Cotten’s death. In a series of transactions sent from the exchange’s internet-connected hot wallets, more than 9,000 ETH moved from Quadriga to a handful of other exchanges, including Binance, Bitfinex, Kraken and Poloniex. Most of that crypto was transferred the week before Cotten’s death, but there is no telling who initiated the transactions—the exchange, its customers, or both.

February 8, 2019 — The Ontario Securities Commission, or OSC, announces it will look into what happened at Quadriga. . The news comes just days after the British Columbia Securities Commission said it had no reach into the exchange. (Reuters.)

February 11, 2019 — Jack Martel, one of the newest member of Quadriga’s board resigns, leaving Jennifer Robertson and her stepfather Thomas Beazley as the only two directors. (Second report of the monitor.)

February 12, 2019 — Things just keep getting worse for Quadriga creditors. In its initial report, the monitor reveals that on Feb. 6—a day after Quadriga was granted creditor protection—the exchange “inadvertently” sent 104 of the bitcoin it was holding in its hot wallets (worth roughly $468,675 CAD) to its dead CEO’s cold wallet, which nobody can access. 

The hot wallets now contain 51 bitcoin (BTC), 33 bitcoin cash (BCH), 2,032 bitcoin gold (BTG), 822 litecoin (LTC), and 951 ether (ETH), worth $434,068 CAD—less than half the value of what they held before.

February 14, 2019 — Nova Scotia Supreme Court Judge Michael Wood appoints law firms Miller Thomson and Cox & Palmer to represent Quadriga creditors throughout the CCAA proceedings. Miller Thomson is the lead counsel located in Toronto; Cox & Palmer is the local counsel. The scope of their work is spelled out here.

February 20, 2019 — In its 2nd Report of the Monitor, Ernst & Young reveals that the sending of 104 BTC to Quadriga’s cold wallets earlier was due to a “platform setting error.” The CCAA process is also running low on funds. EY has in its possession tens of millions of dollars in bank drafts from Quadriga and its payment processors. The problem is getting a bank to accept the funds. (Read my story here.)

February 22, 2019 — The court issues a “Banking arrangement order” at the request of Ernst and Young. The order offers limited protection to the Bank of Montreal and the Royal Bank of Canada for handling bank drafts related to Quadriga and its payment processors.

There is also an issue of a a disputed $5 million CAD bank draft—EY has determined that $60,958.64 CAD of that is owed to Costodian principal Jose Reyes, because these were his personal funds. And $778,213.94, which Custodian claims it is owed in unpaid transaction fees, will go into trust account pending further order of the court.

February 25, 2019 — Robertson files a second affidavit. In it, she asks for an extension of the stay of proceedings in the CCAA and the appointment of Peter Wedlake, a senior vice president and partner at tax and accounting firm Grant Thornton, to the position of chief restructuring officer for Quadriga. The CRO would fill the director position left vacant by Jack Martel stepping down on February 11. Thornton has cryptocurrency experience and is a “certified bitcoin professional.

Screen Shot 2021-03-04 at 7.45.33 PMFebruary 28, 2019Globe and Mail (archive) tracks down a booking photo of Omar Dhanani and posts it alongside a screen grab of Michael Patryn taken from a Youtube video. The two faces look strikingly similar.  

March 5, 2019 — Justice Michael Wood grants Quadriga a 45-day stay and approves the appointment of Peter Wedlake as chief restructuring officer. (My coverage here and here.)

March 13, 2019 — The law firm representing Quadriga in the CCAA proceedings tells the court that it is stepping down, effective immediately. Stewart McKelvey had been representing both Quadriga and the estate of Quadriga’s dead CEO. This led to concerns of a potential conflict of interest from the monitor and the representative counsel. Stewart McKelvey will continue to represent Robertson’s estate.

March 19, 2019Bloomberg straight out announces that Michael Patryn is Omar Dhanani. Reporters tracked down the actual documents showing two name changes. “Patryn changed his name from Omar Dhanani to Omar Patryn with the British Columbia government in March 2003. Five years later, he registered a name change to Michael Patryn in the same Canadian province.” There is no doubt now of Patryn’s true past and identity. 

March 19, 2019 — The representative counsel in Quadriga’s CCAA now have a voice to listen to. Miller Thomson and Cox & Palmer appoint a steering committee to help them represent 115,000 of the exchange’s creditors. The members include: Parham Pakjou, David Ballabh, Eric Bachour, Ryan Kneer, Magdalena Gronowska, Eric Stevens and Nicolas Deziel, with Richard Kagerer and Marian Drumea assigned as alternates.

April 2, 2109 — EY releases its fourth monitor report. The monitor proposes that Quadriga shift from its Companies’ Creditor Arrangement Act proceedings into proceedings under the Bankruptcy and Insolvency Act.

EY is moving to preserve Robertson’s assets, so that she can’t liquidate or transfer them. The monitor is also grappling with a host of former Quadriga third-party payment processors to track down more missing money.

April 8, 2019 — Quadriga is officially placed into bankruptcy.  The transition means EY will be granted enhanced investigative powers as a trustee.

April 18, 2019 — Justice Wood extends Quadriga’s creditor protection to June 28. On that date, the CCAA proceeding will expire and Quadriga will enter a pure bankruptcy.  

May 10, 2019 — EY publishes its trustee’s preliminary report. The report is dated May 1, but looks to have been published several days later. It reveals what many Quadriga creditors likely already know — most of their money is gone. Quadriga has US$21 million but owes creditors US$160 million.

June 19, 2019 — Quadriga’s publishes its fifth report of the monitor, and it is a doozy. The report begins to draw a clear picture of the huge fraud that was taking place inside the exchange. Most notably, it describes how millions of dollars worth of funds were funneled off the exchange via slush accounts set up by Gerald Cotten himself. The biggest is the “Chris Markay” account.

The numbers are somewhat different than earlier. According to EY, the exchange owed 76,000 users (not 115,000) $215 million CAD (not $250 million CAD) in fiat and crypto. So far, only $33 million CAD has been recovered. (My story in Decrypt)

August 26, 2019 — In a second report of the trustee filed with the Supreme Court of Nova Scotia, EY notes that there are now four law enforcement agencies and regulators requesting information about Quadriga. It reveals two: the Royal Canadian Mounted Police and the FBI. The identity of the other two remains undisclosed, though Coindesk reports that one may be an Australian investigative agency and a later story in Vanity Fair suggests one is a federal agency in Japan.

Separately, EY also recommends moving Quadriga’s ongoing bankruptcy proceedings from Halifax to Toronto to reduce costs. “As the majority of the professionals are located in Ontario, there would be significant cost savings to transferring the proceedings to Ontario,” the auditor said. “There are very few remaining ties to Nova Scotia at this time.”

September 10, 2019 — A Nova Scotia judge approves the request to move the Quadriga bankruptcy process to Toronto. The court proceedings for the shuttered exchange have been held in Halifax since January 2019, following its founder’s untimely death.

October 7, 2019 — EY files its fourth report of the trustee. Jennifer Robertson, Cotten’s widow, agrees to turn over roughly CA$12 million (US$9 million) in assets to EY Canada. In a statement, she said she had “previously thought [the assets] were purchased with Gerry’s legitimately earned profits, salary and dividends.”

Robertson’s, stepfather, Thomas Beazley, will also transfer to EY any assets he bought with money that came from Quadriga, including a 2017 Toyota Tacoma truck.

Meanwhile, Robertson will get to keep her clothing and personal items, her wedding band (worth CA$8,700) and a 2015 Jeep Cherokee. She will also retain about CA$90,000 in cash, a CA$20,000 Registered Retirement Savings Plan and her shares of the company. She will have to vacate her home in Fall River, N.S., by the end of the month.

November 18, 2019 — Einstein, another cryptocurrency exchange in Canada, goes belly up. The news comes out that there’s nothing left at all. The money and cryptos are all gone. The British Columbia Securities Commission had been investigating Einstein since May 2019 — after multiple complaints from customers who couldn’t access their funds, going back to January 2018, David Gerard reports in his blog.

December 13, 2019 — Law firm Miller Thomson sends a letter to the Royal Canadian Mounted Police on behalf of Quadriga creditors requesting the RCMP exhume Cotten’s body and perform a post-mortem autopsy to confirm his “identity and the cause of death.” Of course, they want this done before spring when the warmer weather is sure to cause the body to further decompose.

January 8, 2020 — Argo Partners, a New York City hedge fund that specializes in purchasing bad debt against bankrupt entities, begins reaching out to Quadriga creditors to see who might interested in selling stakes in their remaining funds. An announcement (archive) on the firm’s website says that anyone interested in “receiving a price quote for your claim” should fill out an online form or call the firm directly.

January 22, 2020 — Miller Thomson, the representative counsel for QuadrigaCX creditors, asks creditors for help in identifying any records related to Crypto Capital Corp. In a letter (archive) posted on its website, the law firm said that it had received information that a “Panamanian shadow bank” may have been a payment processor for the exchange in the final quarter of its operation. In other words, Q4 2019.

Crypto Capital at one time listed Quadriga on its website as a client. The exchange’s now-deceased founder also admitted to using the firm in the past. In an email to Bloomberg News on May 17, 2018, Gerald Cotten wrote: “Crypto Capital is one such company that we have/do use. In general it works well, though there are occasionally hiccups.”

I found evidence strongly suggesting that financial documents from Quadriga’s former users do, in fact, link to Crypto Capital.

January 22, 2020 — EY’s 5th trustee report reveals the accounting firm racked up nearly $500,000 USD in costs responding to law enforcement requests in the second half of 2019.

January 28, 2020 — Miller Thomson gets fed up with the RCMP’s inaction, so it sends a letter to Bill Blair, Canada’s Minister of Public Safety and Emergency Preparedness, who is the person responsible for the RCMP. Will Cotten’s body will be exhumed by springtime, or not? That is the question.

June 1, 2020 — All virtual currency exchanges in Canada as well as foreign virtual currency exchanges serving Canadian residents are now required to register as a money services business with the country’s anti-money-laundering watchdog FinTRAC. 

June 11, 2020 — The Ontario Securities Commission publishes its review of QuadrigaCX. Gerald Cotten operated Quadriga like Ponzi scheme, the OSC said. “What happened at Quadriga was an old-fashioned fraud wrapped in modern technology.”  

# # #

News: QuadrigaCX has gone bust, Kik is fighting back, and Tether rose to 4th place, briefly

QuadrigaCX customers’ worst fears have come to pass. The Canadian exchange is officially insolvent, and all the crypto is gone—well, most of it anyway.

On January 31, after filing for creditor protection, Jennifer Robertson, the widow of the exchange’s now-deceased CEO Gerald Cotten, filed an affidavit with the Supreme Court of Nova Scotia. As it turns out, Cotten was the only person who held the keys to the exchange’s cold wallets—encrypted wallets where cryptocurrency is kept offline. When he died in December, all that crypto became inaccessible.

According to the affidavit, QuadrigaCX owes 115,000 customers some $250 million CAD ($190 million USD) in both crypto and fiat. Roughly $192 million CAD ($147 million USD) were in crypto assets, most of it in the cold wallets.

In addition to the lost crypto, $30 million CAD is currently held by payment processor Billerfy. Three other third-party payment processors are holding a combined $565,000 CAD. And another $9.2 million USD is stuck inside WB21—a money transfer service that, surprise, surprise, is being sued by the U.S. Securities and Exchange Commission (SEC) for fraud.

But here is where things get strange. Two weeks before he died, Cotten signed a will leaving $100,000 CAD for his two dogs, according to the Globe and Mail (archive.)

I’m not insinuating any foul play here, but let’s go over what we have: Cotten and Robertson supposedly got married two months before his death. Cotten writes up a will to make sure his dogs are taken care of and Robertson takes ownership of 43% of the shares of Quadriga Fintech Solutions, the parent company of QuadrigaCX, should anything awful happen to him. Once that’s all said and done, something awful happens. Cotten goes off to India to help needy children (so nice of him) and dies.

Screen Shot 2019-02-03 at 7.47.19 AM

A month later, Robertson posts an announcement on the exchange’s website telling everyone the company’s CEO is dead. He was a kind, honest, upstanding, guy…after all, he sponsored an orphanage. And then later: Oh, and by the way, all the money is gone, because only Gerald knows where he put it.

[Update: A new twist to this plot may be developing. One Reddit user claims to have found the QuadrigaCX litecoin cold wallet addresses—and the funds appear to be on the move.] 

Elsewhere in the news, Canadian social media startup Kik plans to fight an expected SEC enforcement action over an initial coin offering (ICO). (Read my coverage here.) Kik raised $100 million in 2017 by selling its kin token. In a response to a Wells notice from the SEC, Kik argues that its token is a currency, therefore, it cannot be a security, and besides, the company never marketed kin as an investment anyway.

You could almost go along with that, as long as you completely ignored this 2017 Youtube video of Kik’s CEO Ted Livingston telling everyone how rich they could become if they owned kin. “We’re gonna put [kin] inside Kik and it will become super valuable on day one, we think.” Oops! (Read the full coverage in The Block.)

Two “professional hacking groups” are behind the majority of publicly reported hacks of crypto exchanges and other cryptocurrency organizations, according to a crypto crime report published by blockchain data analytics firm Chainalysis. The two nefarious groups so far have raked in $1 billion of hacking revenues for themselves. Of course, even thieves don’t keep their holdings in bitcoin. They converted everything to fiat.

If you thought SingularDTV was a dreadful name, the blockchain entertainment company has come up with something even more bad. SingularDTV has changed its name to Breaker. The company has a new logo, too—a circle comprised of small lines swirling inward meant to represent the “the hive mind,” a type of groupthink that decentralized projects like to associate themselves with.

Breaker owns Breaker Magazine, which changed its name to BreakerMag to avoid confusion. To go along with the new branding, Breaker (we’re talking about SinglarDTV now) also released a cringe-worthy video that starts with a man gyrating his hips and saying, “It’s like this,” and then devolves into a woman ripping a pink beauty mask off her face. As if the name change wasn’t awkward enough.

Nicholas Weaver, a researcher at International Computer Science Institute, gave a talk at Enigma, a USENIX conference, called “Cryptocurrency: Burn it with Fire!,” where he argued the entire cryptocurrency and blockchain space is effectively one big fraud. Here are the slides to the presentation. The video is not up yet, but Weaver gave a similar talk in April 2018. (It’s funny, watch it.)

For a brief period, tether (USDT), the stablecoin associated with the crypto exchange Bitfinex, rose to become the fourth largest crypto by market cap at $2 billion. It has dropped back down to sixth place now, but who knows, maybe it will rise up again. (Read my tether timeline to learn why tether is so important to crypto markets.)

Banking giant JP Morgan says bitcoin is now worth less than the cost to mine it. “The drop in Bitcoin prices from around $6,500 throughout much of October to below $4,000 now has increasingly pushed margins further and further negative for just about every region except low-cost Chinese miners,” the bank’s analysts said. (Bloomberg)

Despite all the hype, decentralized exchanges (DEX) are not attracting much interest. According to a report in Diar, DEX volume is at an all-time low—something that’s unlikely to change, mainly due to poor usability issues. Another reason to avoid DEXs:  anyone can list any token they like—even if it’s not a legitimate one.

Binance has come up with yet another harebrained business scheme. The Malta-based crypto exchange now allows customers to buy crypto using their credit cards. I can’t see this working out too well. Banks generally distance themselves from all things crypto, and many won’t allow you to put crypto on credit cards. And even if they do, weird things happen. US-based crypto exchange Coinbase no longer accepts credit cards, but when it did, Visa actually overcharged buyers—though, it did eventually issue refunds.

An Italian bankruptcy court found Francisco Firano (aka “Francisco the Bomber”) personally liable for $170 million in losses related to the BitGrail hack in April 2018. (Last year, I wrote a story about the hack for Bitcoin Magazine.) The BitGrail Victims Group posted scans of the court documents along with an explanation of the court’s decision on Medium.

In a big win for nocoiners, David Gerard, author of “Attack of the 50-foot Blockchain,” wrote a op-ed for The Block titled “The Buttcoin Standard: the problem with Bitcoin,” where he basically takes apart bitcoin and criticizes the horrendous energy waste of proof of work. Gerard’s article was solid. But just as you might expect, bitcoiners objected en masse, and even attacked The Block cofounder Mike Dudas.

Most of the criticisms were attempts to discredit the author and consisted of vague comments, such as “[Gerard’s] thought process is fundamentally broken at the protocol level,” “I was hoping for a more astute criticism,” and “terrible journalism!

Apple cofounder Steve Wozniak, who used to go around comparing bitcoin to digital gold, admits he sold all his bitcoin at its peak. “When it shot up high, I said I don’t want to be one of those people who watches and watches it and cares about the number. I don’t want that kind of care in my life,” he said at the Nordic Business Forum. “Part of my happiness is not to have worries, so I sold it all and just got rid of it.” (Satoshi Times)

And finally, the police department in Lawrence, Kansas has been getting reports of bad actors calling people up at random to demand bitcoin.

News: Radio silence from QuadrigaCX, wash trading doesn’t pay, and KYC data turning up on the dark web

screen shot 2019-01-26 at 11.46.22 pmQuadrigaCX customers are still waiting to get their funds. The Canada-based crypto exchange has been eerily quiet since reporting on January 14 that its CEO Gerald Cotten died in India—a month earlier. 

Since then, the only sign of life has been a single tweet warning customers that another twitter account was fake.

Trouble began a year ago when the Canadian Imperial Bank of Commerce froze about $22 million in US dollars in an account opened by QuadrigaCX’s payment processor. The majority of the frozen funds were released in December, but customers still aren’t getting their money. In recent developments, one user on Reddit claims that he received $18,000. But several more of the exchange’s customers are complaining that their fiat withdrawals are being marked as completed with no money coming through.  

Customers are unable to move crypto out of the exchange either. Some report that requests are simply left pending.

According to a petition submitted to the Supreme Court of British Columbia on January 22, QuadrigaCX was to hold a shareholders meeting on January 25 to appoint a new director. When Cotten died on December 9, he left the company with no officers, and no way to carry out its business. Still, it is not clear if that is what is holding up funds or if something nefarious is going on. Two days after the shareholders meeting, the exchange still hasn’t posted an update.  

Crime, or in this case wash trading, doesn’t pay. Two executives at South Korean crypto exchange Komid are heading off to jail for faking volume, according to BlockinPress. Choi, the CEO, was sentenced to three years; Park, another executive, was sentenced to two years. Court documents say the faked volume led Choi and Park to earn $45 million.

Know-your-customer (KYC) data (ID cards, drivers licenses, and more) from several top exchanges, including Binance, Bittrex, Bitfinex, and Poloniex, appears to have surfaced on the dark web. Binance claims the data is not coming from its servers. Bitfinex also claims its databases have not been breached.

Since the markets crashed, crypto exchanges are looking for ways to boost their profits. To that end, Coinbase announced that is expanding its institutional trading services to Asia. The San Francisco-based exchange also now supports SWIFT wire transfers that will allow clients in Asia to fund their accounts from banks based outside the U.S.  

Immutability (aka “be your own bank”) has been a big selling point for blockchain. But it also makes mistakes especially painful. Korean crypto exchange Coinzest (not to be confused with Coinnest, a separate exchange) accidentally airdropped $5.3 million worth of bitcoin and other crypto to its customers. 

Polkadot, a project founded by former Ethereum CTO Gavin Wood, aims to solve the problem of blockchain interability. (If you’re not sure what that means, Wood tries to explain it here.) In October 2017, Polkadot raised $145 million worth of ETH in an ICO. Shortly after, $98 million of those funds became frozen due to a bug in Parity wallets, another Wood project. But that’s okay, because you can always get more funding.

In fact, earlier this month, Ethereum gave Parity Technologies, the umbrella company that Parity and Polkadot fall under, a $5 million grant. (Read this Reddit thread to get a sense of how the community felt about that.) Now Polkadot is reportedly looking to raise $60 million through another ICO, according to the Wall Street Journal. Polkadot still does not have a working product.

After one year of serving as CEO of decentralized media platform, Jarrod Dicker has stepped down and returned to the Washington Post. allows journalists to create time-stamped titles for their work on a blockchain. The problem is, creating archives of our work is not a problem we journalist have. (I mean, there are lots of services that do that, and most of them are free.) Rather, it appears to be just another thinly veiled excuse for launching an ICO. raised $10 million in August 2017. 

Crypto lawyer Stephen Palley reports on the latest developments in the Tezos class action suit for The Block. In support of “yeah, this was a securities offering,” plaintiffs in the case cite emails from Tezos CEO Kathleen Breitman with securities-like wording. Oops! Tezos raised $232 million in an uncapped ICO in June 2017. The project has gotten criticism for raising above and beyond what most startups need to launch a business.

Galaxy Digital, the crypto merchant bank launched by former hedge fund manager Michael Novogratz, is reportedly raising $250 million for a credit fund aimed at helping needy crypto firms, according to Business Insider. If you are curious about how Novogratz got into crypto (hint: he was Ethereum co-founder and crypto billionaire Joe Lubin’s roommate at Princeton), read this New Yorker piece from April 2018. 

Bitcoiners don’t like to pay taxes. Some crypto folks are getting riled up about Senator Elizabeth Warren’s proposed wealth tax, calling it “theft.” Warren wants to levy a 2 percent tax on assets over $50 million and a 3 percent tax on assets over $1 billion.

Kyle Gibson, a crypto enthusiast and avid researchers who lives in Boston has pulled together a wealth of information on the Texas Department of Banking Memo 1037 and what it could mean for crypto, beyond stablecoins and their issuers. It is worth a read.