The founder of the failed Canadian cryptocurrency exchange QuadrigaCX, who died in December 2018, used clients' assets in his margin trading and deceived the users for years.

The audit firm Ernst&Young submitted a report to the Supreme Court of the Canadian province of Nova Scotia that reveals some financial activities of QuadrigaCX which went offline in January 2019 after its founder, Gerald Cotten, died in Indian Jaipur in December 2018. Cotten’s widow said that all the keys to QuadrigaCX wallets were kept by Cotten in secret and, with his death, lost forever. According to various estimates, QuadrigaCX users have lost more than $140 million in cryptocurrency and $74 million in fiat.

According to EY, the QuadrigaCX users' cryptocurrency assets were not stored in segregated wallets, and some of them were transferred to third-party cryptocurrency exchanges into personal accounts associated with Gerald Cotten. Apparently, Cotten used QuadrigaCX clients' assets as security for margin trading on those competitor trading platforms. Cotten's successes in margin trading were deplorable. He suffered substantial losses. Thus, Cotten allegedly liquidated all of the bitcoin deposited in the account worth approximately $80,000,000 Canadian dollars on a third-party exchange over the course of three years.

 

Earlier, it was reported that QuadrigaCX fulfilled withdrawals using other clients' assets, thus, working as a traditional Ponzi scheme.

Cotten also created fake accounts on his crypto-trading exchange and used them to inflate trading volume and revenue figures artificially.

Currently EY appointed as the monitor managed to recover $31.5 million in fiat and $1 million in cryptocurrency, with almost $183 million being still lost.

The report acknowledges the lack of formal accounting data, records, and access to certain cryptographically protected devices.