# QuadrigaCX (2013 – 2019)

- URL: https://girisimcikafasi.com/en/startup-graveyard/quadrigacx/
- Sector: Crypto and blockchain
- Country: Canada
- Total funding: unknown
- Cause of closure: Regulation and legal issues

## What did it do?

QuadrigaCX was a platform known as Canada's largest cryptocurrency exchange, operated by Quadriga Fintech Solutions. Customers used it to buy and sell bitcoin and other cryptocurrencies against the Canadian dollar. The company said it kept a large share of customer assets in offline cold wallets.

## Why did it shut down?

In December 2018 the founder and CEO, Gerald Cotten, died in India, and it was announced that he alone held the passwords to the cold wallets. Around 115,000 customers were owed 250 million Canadian dollars they could no longer reach, and in January 2019 the company sought protection from its creditors. Ernst & Young found that the five cold wallets it located had been empty since April 2018. The company entered bankruptcy in April 2019. In June 2020 the Ontario Securities Commission concluded that Quadriga had been a fraud and a Ponzi scheme, and that Cotten had traded against customers using fake accounts.

## The story

At the end of January 2019 QuadrigaCX, known as Canada's largest cryptocurrency exchange, made an announcement that ran in headlines around the world: its founder and CEO, Gerald Cotten, had died in India in December 2018, and he alone held the passwords to the offline wallets where customers' cryptocurrency was stored. Around 115,000 customers were suddenly unable to reach the 250 million Canadian dollars (190 million US dollars) they were owed.

Cotten founded Quadriga with Michael Patryn in Vancouver in November 2013. In 2014, 7.4 million Canadian dollars' worth of bitcoin traded on the platform. The company raised 850,000 Canadian dollars but abandoned plans for a stock-market listing in early 2016. It had four employees in 2015 and ran out of money in June that year; from then on, apart from a few contractors, it had no staff, no office and no bank account. The business was run from Cotten's home in Nova Scotia on his encrypted laptop. During the 2017 crypto frenzy around 1.2 billion Canadian dollars' worth of bitcoin changed hands on the platform, and registered users reached 363,000.

The warning signs became clear in 2018. As bitcoin prices fell, customers reported delays to their withdrawals, and in January 2018 a bank froze 28 million Canadian dollars held with a payment processor. After Cotten's death the company sought creditor protection and Ernst & Young was appointed as independent monitor. The five cold wallets Ernst & Young found had been empty since April 2018. On 8 April 2019 the company entered bankruptcy. In December 2019 lawyers representing customers asked for Cotten's body to be exhumed to confirm his identity and cause of death.

In June 2020 the Ontario Securities Commission concluded that Quadriga had been a fraud and a Ponzi scheme. According to the commission, Cotten had opened accounts under false names, credited himself with cash and crypto balances that did not exist, and used them to trade against unsuspecting customers. The commission described what had happened as “an old-fashioned fraud wrapped in modern technology”. This was an administrative finding, not a court ruling; because Cotten was dead, he could not be tried. In March 2023 the bankruptcy trustee, Ernst & Young, announced a first interim distribution of 13 cents for every dollar of proven claims.

Quadriga shows how dangerous unchecked one-person control is at an institution that holds customers' money. A platform that grows without independent custody and proof of reserves can keep its customers' trust only until the problems come to light.

## Lessons

- If you run a financial start-up that holds customer assets, never build a structure in which a single person holds the access keys; multi-signature controls and independent custody are essential.
- As a user, treat withdrawal delays and vague payment methods as the first signs of trouble inside a platform; do not ignore them.
- A business that takes customer funds without independent audits and proof of reserves cannot generate trust, however good its intentions.

## Sources

- [Quadriga (company)](https://en.wikipedia.org/wiki/Quadriga_(company))
- [Controversial QuadrigaCX cryptocurrency exchange placed in bankruptcy](https://www.cbc.ca/news/canada/nova-scotia/quadrigacx-cryptocurrency-exchange-bankruptcy-1.5089539)
- [Crypto exchange Quadriga files for creditor protection](https://www.theglobeandmail.com/business/article-crypto-exchange-quadriga-files-for-creditor-protection/)
- [Unable to Retrieve Money, Cryptocurrency Investors Want Dead Executive Exhumed](https://www.nytimes.com/2019/12/17/business/gerald-cotten-death-cryptocurrency.html)
- [https://www.wikidata.org/wiki/Q55841490](https://www.wikidata.org/wiki/Q55841490)