Ernst & Young (EY) was earlier appointed by the Nova Scotia Supreme court, to monitor the case in order to retrieve the information and the funds, if at all possible. Reportedly, as of the filing date, approx. 76,000 users of QuadrigaCX are unsettled, to a cumulative figure of CD$214.6 million ($162.2 million), which is a combination of fiat and digital assets.
Cryptocurrency Exchange QuadrigaCX and Gerald Cotton
The death of Gerald Cotton on Dec 9, 2018, lead to the liquidity crisis, at the now-defunct- Canadian cryptocurrency exchange QuadrigaCX. Allegedly, the exchange also lost the access of the users’ funds that were secured in the cold storage due to the missing keys which the only Gerald Cotton was holding.
The British auditing and consulting company which is one of the Big Four audit firms Ernst & Young (EY) being chosen as a legal monitory authority towards the filling of creditors protection- following the death of QuadrigaCX- Co-Founder Gerald Cotten, revealed in its 5th report, June 19, about the use of fake accounts, which the deceased Co-Founder exploited. Further, it is also mentioned that Cotten used to illicitly transfer the funds using other users cryptocurrencies for margin trading via competitor cryptocurrency exchanges.
Ostensibly, on QuadrigaCX, Cotten managed to create fake “identified” accounts under multiple pseudonyms “into which unsupported deposits were deposited and he used to trade within the platform.” This leads to “inflated revenue figures, artificial trades with users, and ultimately the withdrawal of cryptocurrency deposited by users.” This, EY asserts.
As per the data, EY is still unable to figure out the details of the wallet holders to which the considerable amount of cryptocurrencies were transferred.
QuadrigaCX BTC, ETH, and LTC Funds, EY Reports
The report claims that the exchange was lacking the ethical record keeping format and “significantly flawed from a financial reporting and operational control perspective.”
Gerald Cotten was the only person taking care of almost all the operational works and did not involve anyone to intervene in the internal control system. Further, it is also disclosed that there were no segregation of digital assets among user funds and QuadrigaCX own funds.
EY report stated that,
“Significant volumes of Cryptocurrency were transferred off Platform outside Quadriga to competitor exchanges into personal accounts controlled by Mr. Cotten. It appears that userscryptocurrencies were traded on these exchanges and in some circumstances used as security for a margin trading account established by Mr. Cotten.”
Moreover, EY also mentions that Cotton’s involvement in dishonest trading on multiple competitor exchanges resulted in him to pay incremental fees and suffered huge losses which consequently disturbed Quadriga’s cryptocurrency reserves and affected the entire fixture negatively.
Reportedly, from a period of 2016-2019, there are various competitor exchanges, received multiple altcoins apart from 9,450 Bitcoin (BTC) from Quadriga wallets, in which 387,738 Ether (ETH)and 239,020Litecoin (LTC) also included. Apart from these figures, over CD$80 million ($60.5 million) in BTC still unaccounted, which is possibly sold through an anonymous third-party exchange.
Tags: QuadrigaCX, Gerald Cotton, Margin Trading, Users Fund, Fake Trading Accounts, Nova Scotia Supreme Court, Cryptocurrency, Cryptocurrency Exchange, Digital Assets,Inflated Revenue Figures, Artificial Trades, Bitcoin (BTC),Ether (ETH),Litecoin (LTC), Third Party Exchange, Ernst & Young (EY), 5th Report,Big Four audit firm