The high-profile death of Gerald Cotten, CEO of Quadriga crypto exchange, has raised significant concerns in the crypto industry in the last few days.
This is due to the fact that the CEO was the sole holder of the private keys and passwords to the company’s cold storage, which has about $140 million worth of cryptocurrencies. According to a statement by the wife of the deceased, a cybersecurity expert was hired to break into the CEO’s main computer, but it remains heavily encrypted and no tangible discovery has been made.
The lost cryptocurrencies include 26,500 bitcoins (BTC), 11,000 Bitcoin Cash (BCH), 11,000 Bitcoin SV (BSV), 430,000 Ethereum (ETH), 200,000 Litecoin (LTC), and 25,000 Bitcoin Gold (BTG). All together, that adds up to a scandal of massive proportions for the surviving administrators of Quadriga as they scramble to appease a lot of angry customers and clients.
Here’s what we know so far: Cotten died on December 9, 2018, due to complications arising from Crohn’s disease at the age of 30. Both a statement of death issued by a Halifax funeral home and a death certificate issued by the Government of Rajasthan’s Directorate of Economics and Statistics report that he died in Jaipur, India.
The circumstances are unusual, to say the least.
And as much as Cotten’s company and acquaintances try to paint this in the best possible light, there are elements in the story that don’t seem to add up — a few too many one-in-a-million chances. Rumors have been ignited, and, inevitably, there are those in the crypto community who have come to the conclusion that Cotten’s death was actually faked.
And while the crypto community is infamous for loving a good conspiracy theory, some high-profile members have dug a little deeper, and in doing their due diligence have found signs that suggest a money-laundering scam.
But first of all, what are people saying about Cotten’s conspicuous and badly timed death? And why?
A Modern Day Agatha Christie Novel?
The first detail that raises questions is the fact that the Cotten died in India, a country where the government has a difficult time maintaining order concerning documentations. Some parts of India have been known to fabricate birth, marriage, and death certificates. An event that exposes these fabrications has been recorded in the past in Mumbai.
In Jaipur, where Cotten died, it is said that a death certificate can be obtained by an application form, a fee receipt and an Aadhaar card (which can be replaced by an international passport for non-Indian citizens). This led many to suggest that the death can be framed through bribery or improper confirmation. An offshoot of this is this comment by a Redditor to the company to provide proof of Cotten’s death.
Here is a video that illustrates the ease of buying a fake death certificate in India:
The second suspicious detail is that Cotten set up his will about 2 weeks before his death. While it is a wise thing to create a will to help take care of the family after death, it is conspicuous when someone does it a few days before dying.
The will was signed November 27, 2018, and it states that his wife, Jennifer Robertson, would receive all his assets when he dies.
The third detail is the fact that Cotten was very thorough when it came to providing for his family in the event of his death. Thus, it seems out of character that he neglected to do the same thing for his company.
It could have been accepted as an oversight if he was left unprotected on every front. But he legally protected his wife in case of his death — he even set up a plan to care for his dogs — but neglected to plan ahead for his company that holds about $200 million of people’s funds.
This gives the impression that he knew the right thing to do, but he deliberately didn’t do it for one reason or another. This does not seem consistent with the character of a man who would make such meticulous provisions for his family.
Other Fishy Discoveries
A serious issue was raised by Taylor Monahan, the founder and CEO of web wallet MyCrypto.
She started a thread on Twitter which indicated that Quadriga did not have a cold wallet for ETH. This thread showed that the Ethereum collected by Quadriga was moved through other exchanges (known ones include Shapeshift, Bitfinex, and Poloniex). Via the Shapeshift exchange, it was concluded that Quadriga was trading ETH for BTC.
The transactions analyzed in the thread happened about 1-2 years ago, insinuating that this is a money-laundering scam that has been a long time in the making.
I'm seeing NO indication of Quadriga ever having cold / reserve wallets for ETH. Looking at their 3 main addresses:
0xb6aac3b56ff818496b747ea57fcbe42a9aae6218 (purple – active)
— Taylor Monahan (@tayvano_) February 4, 2019
In light of Monahan’s findings, Kraken CEO Jesse Powell offered information that his exchange has thousands of Quadriga wallet addresses, implying that he can provide IP addresses to authority figures if needed:
We have thousands of wallet addresses known to belong to @QuadrigaCoinEx and are investigating the bizarre and, frankly, unbelievable story of the founder's death and lost keys. I'm not normally calling for subpoenas but if @rcmpgrcpolice are looking in to this, contact @krakenfx
— Jesse Powell (@jespow) February 3, 2019
Finally, an investigation and analysis by Zerononcense pointed to the fact that the case of Quadrig looks more like money laundering than an unfortunate case of lost keys. They crystallized this point in the following Twitter thread:
Big thanks to a user (anonymous for their sake) that allowed to wield some more powerful software to look under the hood with QuadrigaCX.
Millions upon millions were liquidated through mixers from 2017 – 2019 (yesterday to be exact).
Positive identification here. pic.twitter.com/QVSw1uT0TR
— CryptoMedication (@ProofofResearch) February 7, 2019
To add to the abnormalities that are surfacing on the issue, the co-founder of Quadriga Michael Patryn is alleged to be a fake identity of Omar Dhanani, who was convicted for fraud in the US for committing identity theft via an online marketplace.
Reactions from the Crypto Community
It is not out of place for people to voice their concerns when such a huge amount of funds suddenly vanishes into the thin air, and when the more informatio comes to light on the whole matter, the shadier it all seems.
The news of the event has shaken the crypto world, giving cryptocurrency yet another hurdle to scale in its appeal to the mainstream world and institutional investors. Some top persons in the crypto space have given their view on this issue.
Joseph Young, a crypto reporter, analyst, and an influential presence on crypto Twitter, had this to say:
Seeing how the QuadrigaCX situation is turning out, which may set a bad image for the entire crypto industry, I'm much more appreciative of exchanges that have prioritized security and investor protection for years.
Binance, Coinbase, Kraken, Gemini, and several others.
— Joseph Young (@iamjosephyoung) February 3, 2019
1/ beyond horrifying. canada's largest exchange @QuadrigaCoinEx
– founder dies suddenly
– no one has private keys to wallets
– fiat balances inaccessible
operational security and continuity planning is ESSENTIAL – for both a business *and* an individualhttps://t.co/lDFNBZtq7o
— Meltem Demirors (@Melt_Dem) February 1, 2019
A crypto educator known as Boxmining on Twitter expressed his concern:
QuadrigaCX case Update: Co-founder Michael Patryn has been a using a fake name. His real name is Omar Dhanani who was convicted of fraud (operating an online marketplace for identity theft) in the United States and was released in 2007. Identity not SAFU pic.twitter.com/wHRDgWsci4
— Boxmining (@boxmining) February 5, 2019
David Gerard, author of “Attack of the 50 Foot Blockchain: Bitcoin, Blockchain, Ethereum, and Smart Contracts,” raised an unconfirmed speculation that the “lost” LTC are being allegedly moved around, adding to the uncertainty around the situation:
Mt. Quadriga comedy gold withdrawals – someone notices that the notoriously "lost" Litecoin cold wallets are being drained by someone at this very momenthttps://t.co/xoRoMPjwpN
HAUNTED BY THE GHOST OF GERALD COTTEN
— David Gerard (@davidgerard) February 2, 2019
Meanwhile, QuadrigaCX has filed for creditor protection and put out an official statement on their website which reveals their position on the matter.
The drama involving QuadrigaCX is still very much unfolding, and it’s too early to tell what the truth of the matter really is. It has become a full legal case, and customers can only be patient and let the law take its due course.
While the situation certainly tarnishes crypto’s reputation, the sooner the court gets to the bottom of things, the better it will be for Quadriga’s customers.
Still, the beauty of the crypto world came into light as several stakeholders in the community willingly researched the public transactions of the exchange to point out the anomalies, just for the sake of unearthing the truth.
Exchanges such as Kraken have offered complete transparency and cooperation in the event of a possible government subpoena, in the interest of doing the right thing. This transaction information would have been very difficult to get otherwise and would have taken a lengthy process in the traditional finance and banking system.
This situation, whether scam or not, clearly illustrates the chief virtue of blockchain and cryptocurrencies that has been heralded time and time again — decentralization. When one individual has the ultimate control over an entire organization, that’s when abuses of power — or unpredictable strokes of misfortune — happen.
If nothing else, this event illustrates the close-knit nature of the crypto community and the resolve of good actors looking to resolve scams and uphold the reputation of the crypto community. An incident like this highlights the nascency of the crypto space and how the industry could benefit from tighter regulations.
Ultimately, once hiccups and loopholes like this are corrected, the road to mass adoption of cryptocurrencies in the future should be much smoother.