The crypto industry is a universe of its own, a bustling and motley seaport that harbors characters of all sorts. It boasts crypto kings with their courts, crypto vagabonds and digital prophets, day-fly darlings and bulletproof colossi, and of course, all kinds of tricksters playing old shams on unsuspecting marks. The Quadriga story would be about one of the latter.
The Quadriga case is a Ponzi scheme with a couple of cinematographic twists (spoiler: the protagonist dies, but people are not sure of that). Let’s dive into the backstory of one of the largest Canadian crypto exchanges and try to understand how it all started, what happened to the platform and its founder, and why people are still talking about it.
History of Quadriga
In 2013, two young and bright Canadian crypto enthusiasts Gerald Cotten and Michael Patryn founded an exchange called Quadriga (for whatever reason named after a Roman chariot). Soon it appeared to be a fast and safe coin exchange, rapidly growing on the Canadian crypto market.
Next year, the three most prominent Canadian crypto exchanges unexpectedly closed one by one. All of a sudden, Quadriga directors found themselves at the helm of the country’s largest exchange. The company had many investors throughout its existence, raising $850.000 in private capital only in 2014. Quadriga kept accepting funds from its customers and investors, gaining momentum. It played its cards well during the 2017 Bitcoin craze. The trading platform processed almost $2 billion worth of crypto from over 360.000 users.
Cotten and Patryn were in the epicenter of the Canadian crypto scene. They held crony get-togethers in the Quadriga office and supported local Bitcoin-related events. Cotten became the head of Vancouver Bitcoin co-op. He installed the second Bitcoin ATM in Canada in Quadriga headquarters, attracting even more crypto enthusiasts.
Despite Quadriga’s apparent success as a crypto exchange, people knew it was fishy. In 2016, Cotten became the sole director of the company. At some point, he was the only official Quadriga’s employee, and the office, according to one eyewitness, was just a room with a couple of tables and a dude working from a MacBookPro. Though the Bitcoin price hike of 2017 should have brought Quadriga millions in crypto, they struggled to pay out their customers for some reason. Cotten announced loss after loss, failure after failure, making excuses for the company. In 2018, customers’ and investors’ complaints turned into lawsuits.
The year 2018 was supposed to be blissful for Gerald Cotten. He got married and was planning to spend his honeymoon in India. Nobody knows why he decided to write a will right before the romantic getaway.
On December, 9th he suddenly died in Jaipur, India, after a septic shock, an intestinal obstruction, and several episodes of cardiac arrest. Those were believed to be the complications from Crohn’s disease that Cotten had. Jennifer Robertson, his newly minted wife, was discovered to be Cotten’s trustee. She inherited his C$9.6-million estate, including a boat, an airplane, real estate in several Canadian provinces, and more.
In January 2019, the Quadriga exchange went into maintenance mode and then applied for creditor protection. It turned out the company owed around US$190 million to its 115.000 customers. Well, those things happen, most people would say. But here comes the twist.
Cotten stored all Quadriga users’ funds on cold wallets on his laptop. He was the only one who had access to them: no passwords or code phrases have been found since neither by Cotten’s inner circle nor by the law enforcement agencies. If you know how crypto wallets work, you’ve probably already guessed that in that case, the funds are gone forever, all US$ 190 million worth of coins. Cotten literally took the funds to his grave.
Quadriga had been on law enforcement’s radar for a while before Cotten’s death. As soon as the public knew about the locked accounts, the FBI and the Royal Canadian Mounted Police launched two separate full-scale investigations. Interestingly, they were not the only ones. Hundreds of anonymous snoops from Reddit, Twitter, and other platforms started their own investigations. It’s hard to say who proved more effective, but we know for a fact that social media sleuths helped out a great deal.
Blockchain gurus discovered that there is no trace of Quadriga’s cold wallets on the public ledger. The accounting firm Ernst & Young, an appointed third-party monitor for Quadriga’s bankruptcy, claimed that they’d found five company’s cold wallets. They had been empty since 2018.
Then the other three wallets emerged, one of which had been allegedly used to transfer Bitcoins to Quadriga’s hot wallet in December 2018. It appeared that Cotten moved millions in crypto to other exchanges and personal accounts. They were also empty when the law enforcement got to them, so it looked like Gerald Cotten had squandered all the money on rash trading before he died. Again, allegedly.
By the time the investigators (official and amateur) published their findings, the aggrieved Quadriga’s customers had already gotten the idea that the whole thing was a sham. Everything pointed to it. Ernst & Young revealed that Quadriga kept no internal records for years (despite having an annual trading volume close to $1 billion). Cotten himself routinely forgot to file personal tax returns, and when he didn’t, Quadriga was never mentioned as his source of income. His suspicious and timely death only stirred the pot, sending crypto conspiracists and home-bred investigators on a crusade for truth.
Nobody in the crypto community dwells under any illusions: the Quadriga project was a scam, and both its founders were charming but cold-blooded con men. However, that is not why the discussions around Quadriga continue to boil.
After the scandal, the public ended up in two camps: some believe that Cotten’s death exposed a Ponzi scheme disguised as a crypto exchange platform. Others are sure that the founder’s death itself was a part of the scheme, and Cotten is alive and well.
The second theory’s supporters claim that Cotten (perhaps, in cahoots with Robertson and Patryn) had been planning to fake his death all along. It would probably mean that the funds that were presumed blown off by Cotten settled down on yet another shady account and are helping him move on with his lavish afterlife as we speak.
We may never know the truth about the Quadriga mysterious case. Though judging by the advances Reddit investigators make every now and then, there is hope after all. The crypto world, with its heroes and villains, perfect storms, cloak-and-dagger disappearances, peaks and valleys, will keep turning either way.
Disclaimer: This article should not be considered as offering trading recommendations. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor should research multiple viewpoints and be familiar with all local regulations before committing to an investment.