Lost Password Leads to $190m Cryptocurrency Write-Off

QuadrigaCX is Canada’s largest cryptocurrency exchange, and it takes its name from the horse-drawn chariots that were used for races in the Ancient Olympic Games. However, the once-bright future of the company now looks in jeopardy as it has been forced to file for creditor protection following the unexpected death of its 30-year-old co-founder and CEO, Gerald Cotten.

Mr Cotten died in December 2018 from complications relating to Crohn’s Disease. Unfortunately, as Mr Cotten was solely responsible for handling QuadrigaCX’s funds and coins, the company has been unable to locate or secure its cryptocurrency reserves in the months following its CEO’s death.

On 31st January 2019, documents were filed with Nova Scotia Supreme Court in which the CEO’s widow states that she does not know the password or recovery key for her late husband’s laptop, which he used to carry out the company’s business. And, having carried about “repeated and diligent searches”, she still cannot find anywhere where the password might be written down.

Despite hiring an investigation to try and retrieve any of the missing information, QuadrigaCX has only had “limited success in recovering a few coins” so far, as well as some data from Mr Cotten’s mobile phone and laptop. But the company believes that it’s possible that some of its users’ cryptocurrency may be secured on other crypto-exchanges.

The affidavit which was received by Nova Scotia Supreme Court says that most of the Quadriga’s cryptocurrency was stored in a secure cold wallet to prevent hacking and theft. It also estimates that around $190m (or £145m) is owed to 115,000 of the exchange’s users.

The company is due to appear in court today for a preliminary hearing. However, it’s not the first time that QuadrigaCX has found itself in hot water.

In 2019, one of the company’s banking partners, CIBC (the Canadian Imperial Bank of Commerce) froze around $28m of the exchange’s assets as the bank was unable to determine the real owners of the funds. The decision was badly received by Quadriga which claimed that a considerable chunk of the funds belong to its company, and the bank had no right to freeze the account. The asset freeze led to the exchange’s customers experiencing problems in withdrawing their funds for several months.

Before Quadriga ceased trading cryptocurrencies following its press release advising its customers that it’s continuing “work extensively to address our liquidity issues” including attempts to locate and secure the cryptocurrency reserves that it holds in cold wallets, it held around $92.3m of Bitcoin, $46m of Ethereum, $6.5m of Litecoin, and more than $2m of other Bitcoin variants such as Bitcoin Gold and Bitcoin Cash.

The company has promised to keep its customers updated via its website following the preliminary hearing that is being held today (Tuesday, 5th February 2019) at which Ernst & Young Inc. will be acting as an independent third party to oversee the proceedings.

By Laura Kilby.

Sources:

https://www.forbes.com/sites/billybambrough/2019/02/05/a-major-canadian-bitcoin-exchange-has-a-big-problem/#53628c465236

https://www.bbc.co.uk/news/world-us-canada-47123371