A week ago I posted about the QuadrigaCX Exchange being illiquid because it posted a notice first about going down for “system maintenance” followed days later by a press release that they were filing for creditor protection (end of January 2019). It was not until after this that they announced their founder and CEO, Gerald Cotten, died suddenly from complications of chrons disease while in India, back on December 9th, 2018.
QuadrigaCX apparently had $145 million (CA$190 million) worth of cryptocurrency in their cold storage, being held on behalf of 115,000 of their clients (they have over 300,000 clients in total, myself included, but I had no cryptocurrency on their or any exchange). Supposedly, Gerald Cotten was the only person with access to the exchange’s cold storage.
The death of a young person is always tragic, especially unexpected death. I do not want to understate this. Acknowledging the tragic circumstances of this conundrum, if we examine the facts and events, something appears suspicious.
Now, this is an ongoing, evolving situation, so things may change as new facts come to surface. I have been following the news on this situation, and just yesterday (Friday, February 8th 2019) Laura Shin released a podcast episode on Unconfirmed discussing the situation. I highly recommend listening to it.
I am going to walk us through some facts and then some suspicions, after which we can discuss a view on the overall situation.
The Facts Surrounding QuadrigaCX and It’s Founder/CEO, Gerry Cotton:
- QuadrigaCX was founded in November 2013 by Gerald Cotten.
- Gerald Cotten died December 9th 2018 due to complications from Chrons Disease, while in India.
- Gerald Cotten was the only person with access to QuadrigaCX cold storage wallets.
- QuadrigaCX had been dealing with liquidity issues with Canadian banks over the past year.
- Many clients have reported problems with withdrawing fiat and cryptocurrency withdrawals being slow.
- Gerald Cotten signed a will 27 November 2018, appointing his wife as the executor of his estate.
- In his will, he took account for various assets, including an aeroplane, real estate in British Columbia and Nova Scotia, as well as $100k allotted to provide care for his two pet dogs.
- Co-founder “Michael Patryn” (official name Omar Dhanani) was convicted of fraud in California in 2005
The Suspicions Surrounding the Death of QuadrigaCX’s Founder/CEO, Gerry Cotton:
- A thriving industry of fake death certificates in India
- QuadrigaCX crypto addresses appear to not have the expected crypto holdings within them, according to investigations by Taylor Monahan (Founder and CEO of MyCrypto)
Questions Surrounding the Death of QuadrigaCX’s Founder/CEO, Gerry Cotton:
- Why did it take so long for the exchange to come forth with the Founder’s death?
- Why isn’t there more evidence surrounding his death? Where is his body?
- Where is the cryptocurrency that should be in their exchange addresses?
- Why wasn’t a multisig wallet used for the cold storage of crypto assets?
Discussion, was the QuadrigaCX CEO a Tragedy or Trickery?
First, an exchange as large as QuadrigaCX that has been operating for 5-years in the cryptocurrency industry, managing close to CA$200 million should have had contingency plans and security measures for access to the cold storage, and not left it in the hands of a single person. This is a significant oversight on the part of the company and CEO.
Standard cryptocurrency exchange practice is to have a multisig cold storage solution with many hardware wallets. Typically in a vault with security. The question remains whether this flaw was negligence or planned.
Second, Gerald Cotten was diligent in his will, accounting for his various personal assets, including his pets. Why would this diligence not extend to his corporation worth hundreds of millions of dollars? In my opinion, this is quite suspicious.
Additionally, Michael Patryn, the co-founder of QuadrigaCX is a convicted criminal (fraud) by the name of Omar Dhanani. I am uncertain of what to make of this situation. Does Michael Patryn still have criminal tendencies? And if so, would it have been enough to persuade Gerry Cotten? This is pure speculation.
Moreover, with respect to Cotton’s death, it would be nice to know more details. Where is his body? I’m no forensics specialist nor a politician, but I would presume that the unexpected death of a young foreigner worth millions of dollars would have sparked some news earlier and/or some communication between the governments of India and Canada. Perhaps this was the case, but where is the evidence? What was discussed?
Furthermore, there are rumours circulating that there is a thriving fake death certificate industry in India. I have no way to confirm or deny these rumours. I can only acknowledge that rumours exist. Even if this is true, it does not prove anything; however, it does shed suspicions on the whole situation.
Last, Taylor Monohan from MyCrypto is a highly intelligent and knowledgeable expert in the cryptocurrency industry. She conducted some basic research/investigation into reading the blockchain ledger tracking the three primary QuadrigaCX addresses. She noted that there were outflows of cryptocurrency from these addresses for the past ~7 months to different crypto exchanges, but that no one had paid any attention to it earlier. She also noted that there does not appear to be any large sums of cryptocurrency on any known QuadrigaCX addresses. However, it is important to acknowledge that there may be other unknown QuadrigaCX wallets in existence that have the holdings in them. I am personally doubtful, but it is possible. Listen to Taylor explain her investigation on Laura Shin’s podcast episode of Unconfirmed (also linked above).
An article posted in The Chronicle Herald was defending Gerry Cotton as a bright, honest, and kind individual who worked hard to grow QuadrigaCX into the multimillion-dollar exchange that it is today. The article quotes a friend and former business partner of Gerry’s, Freddie Heartline. Heartline defended Gerry on every front. He knew Gerry, I did not. I definitely think that this account of the CEO’s personal qualities deserves considerations in the deliberations going forward.
If the situation looked a little different, something along the lines of Gerry Cotton died suddenly while in India, this is tragic, but not to worry, there is a multisig wallet and a clear succession plan at QuadrigaCX, then we could all mourn and celebrate the great accomplishments of such a young man. The lack of transparency and lack of diligence for the cold storage wallets, and the lack of a succession leaves a bad taste surrounding the whole situation.
Conclusion: Tragedy? Trickery?
Given the above discussion, I personally think that it’s tough to come to a concrete conclusion. It’s still early in this investigation. One thing that I know for sure is that I am not convinced either way. I am suspicious of whether or not his death is real. Even with the reassuring comments from Cotton’s friend, Freddie Heartline, the fact remains that QuadrigaCX is still missing/unable to access ~$145 million USD worth of cryptocurrency. Gerry Cotton either was negligent or is criminal.
Another thing that is for certain, it solidifies my stance on “not your keys, not your crypto”. That should be the motto of Ledger or Trezor or KeepKey or Shift Cryptosecurity or any other hardware wallet company.
Moreover, regardless of whether this situation is a tragedy or trickery, the fact remains that the whole experience puts a stain on the cryptocurrency exchange industry. The last 8-10 years has been rife with cryptocurrency exchange mishaps and scandals. Regardless, neither is a good outcome. It discredits the good efforts and reputations of legitimate cryptocurrency exchanges such as Binance, Gemini, Bitstamp, Kraken, etc.
Interim conclusion: undecided; Gerry Cotton either was negligent or is criminal.
Please feel free to contribute to the discussion in the comment section below!