Quadriga was once the largest cryptocurrency exchange in Canada until the end of January when it closed its operations due to the sudden death of Gerald Cotten, who was the company’s CEO.
According to court documents, when Cotton died on 9 December in India, this meant that the Vancouver-based exchange was unable to pay 115,000 customers 260 million CAD (£148m) in bitcoin and other cryptocurrencies, as Mr. Cotten was the only one that has access to the digital wallets.
Ernst & Young, the accountancy firm appointed by the court to supervise the search for the lost funds, was unsuccessful in its efforts to track down the cryptocurrency.
Of the six wallets that were supposed to have been used by Mr. Cotten to keep large sums of crypto assets offline, it was revealed that five of them were empty.
On 1 March, a report published by Ernst & Young stated that the sixth wallet “appears to have been used to receive bitcoin from another cryptocurrency exchange account”, though the figure stored in it represented only an insignificant fraction of the missing amount.
Jennifer Robertson, Cotten’s widow, stated that the funds were allegedly relocated to cold storage wallets “as a way to protect the coins from hacking or virtual theft”.
This is not an unusual thing to do in the crypto industry, however, experts say it is unusual for the passwords required to access the cold storage wallets to be held just by one person.
“Using a reputable custodian to hold the private keys outside the company is perhaps the best option to ensure these codes are not lost,” CCO of the cryptocurrency exchange BeQuant, Erik Wilgenhof Plante, reportedly said to The Independent in February. “A single person owning this information creates a huge vulnerability.”
Ms. Robertson previously stated in an affidavit: “I do not know the password or recovery key [for the wallets]. Despite repeated and diligent searches, I have not been able to find them written down anywhere.”
The mystery got even more entangled, as some Quadriga customers became suspicious regarding how Cotton died, which was reportedly due to complications from Crohn’s disease.
“There are still a number of suspicious circumstances around Gerald Cotton’s reported death that need to be looked into,” stated a former US Department of Homeland Security General Counsel, Steve Bunnell, who now works as a data security specialist at the O’Melveny law firm.
“But regardless of whether the custody of crypto on QuadrigaCX was mismanaged or whether there was something more nefarious involved, the situation highlights the importance for customers of dealing with crypto exchanges that are reputable and know how to safely custody cryptocurrency.”