Digital-asset exchange Quadriga CX has a $200 million problem with no obvious solution – just the latest cautionary tale in the unregulated world of cryptocurrencies.
Its’ chief executive has died, and he’s apparently the only one with the ability to unlock all his customers’ coins.
Quadriga can’t recover the crypto assets for now
The unusual case highlights the risks investors face looking after their assets in the thinly regulated industry.
Access to Quadriga CX’s digital “wallets” – an application that stores the keys to send and receive cryptocurrencies – appears to have been lost with the passing of Quadriga CX Chief Executive Officer Gerald Cotten, who died Dec. 9 in India from complications of Crohn’s disease. He was 30.
Cotten’s death has plunged Quadriga into crisis and left it struggling to figure out how to refund more than 100.000 of its users.
Cotten was always conscious about security – the laptop, email addresses and messaging system he used to run the 5-year-old business were encrypted, according to an affidavit from his widow, Jennifer Robertson. He took sole responsibility for the handling of funds and coins and the banking and accounting side of the business and, to avoid being hacked, moved the “majority” of digital coins into cold storage.
Nova Scotia through Ernst & Young are “on the case” for people getting their money back
On Tuesday, the company said it was granted creditor protection in the Nova Scotia Supreme Court as it tries to sort out its financial mess. The Nova Scotia court appointed financial services firm Ernst & Young as an independent monitor that will oversee Quadriga’s efforts to resolve its financial problems.
His wife, Jennifer Robertson, who wrote that she has become “significantly more involved in the issues” facing Quadriga since Cotten’s death, says she has his encrypted laptop and USB, which may hold the cryptographic keys to the cold storage funds, but doesn’t have the credentials to log in. She says a search of their Nova Scotia home for her husband’s business records turned up nothing, and attempts to hack the laptop by a security contractor have been unsuccessful. According to the CBC, the hardware will be turned over to an independent court-appointed lawyer.
“After Gerry’s death, Quadriga’s inventory of cryptocurrency has become unavailable and some of it may be lost,” Robertson said, adding that the company’s access to currency has been “severely compromised” and the firm has been unable to negotiate bank drafts provided by different payment processors.
“For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets, and that are required to satisfy customer cryptocurrency balances on deposit, as well as sourcing a financial institution to accept the bank drafts that are to be transferred to us,” the firm said. “Unfortunately, these efforts have not been successful.”
Quadriga’s strange tale is just the latest mishap to hit cryptocurrencies. Exchanges, in particular, have been the targets of hackers, racking up billions in losses. To reduce exposure, many custodians of cryptocurrency divide the funds between so-called “hot” wallets, used for day-to-day transactions, and offline “cold” storage, which is much harder for hackers to access.
His security measures are understandable. Virtual currency exchanges suffered at least five major attacks last year. Japan, home to some of the world’s most active digital-asset exchanges, has also hosted two of the biggest known crypto hacks: the Mt. Gox debacle of 2014 and the theft of nearly $500 million in digital tokens from Coincheck Inc. last January.
As is often the case with crypto, the episode has raised speculation on Reddit’s online forums, where posters are wondering aloud if the business was a scam, calling for class-action lawsuits and even concocting conspiracy theories that call into question whether the CEO is even deceased. The latest online speculation suggests that Quadriga CX funds have been moving — even though the firm claims they can’t get access.