QuadrigaCX, the largest crypto exchange in Canada, has lost CAD $190 million (USD $145 million) due to losing access to their cold storage wallets after its founder dies.
When one loses their funds on an exchange, the normal assumption is that a major hack occurred. Sadly, exchange hacks are not uncommon, but such is not the case with QuadrigaCX, the largest cryptocurrency exchange in Canada, which has lost USD $145 million of its users’ assets due to unusual and unforeseen circumstances.
QuadrigaCX Loses Cold Storage Access Due to Founder’s Death
The Canadian exchange seems to be suffering from more than its fair share of problems. Last year, the Imperial Bank of Commerce froze the accounts of 388 customers due to confusion over who owned the funds. The impacted accounts totaled $28 million, and the funds were finally released last December by an Ontario court.
Then, on December 9th of last year, the founder and CEO of QuadrigaCX, Gerald Cotten, died in India due to complications from Crohn’s disease. He was in India to open an orphanage and was only 30 years old.
The exchange released a statement about Cotten’s passing, saying:
Gerry’s death was a shock to all of us and we are deeply saddened by his passing. One of Gerry’s many accomplishments was his ability to build a highly capable and successful management team, which will continue his legacy.
However, the current major problem is that Cotten was the only person who had access to the exchange’s cold storage wallets. No one has been able to gain any access since his death, which means $190 million in Ethereum, Bitcoin Cash, Litecoin, Bitcoin, Bitcoin Gold, and Bitcoin Cash SV is essentially lost.
Filing for Protection
QuadrigaCX has hired a consultant to decrypt the laptop used by Cotton as they contain the private keys needed to get into the cold storage wallets. The consultant has not been successful as of yet, which means that the funds are still out of reach for everybody.
The exchange just recently filed an affidavit for a stay of proceedings, which would protect the exchange from any class action lawsuits while they attempt to resolve the situation. The exchange has posted the following message on its website:
An application for creditor protection in accordance with the Companies’ Creditors Arrangement Act (CCAA) was filed today in the Nova Scotia Supreme Court to allow us the opportunity to address the significant financial issues that have affected our ability to serve our customers. The Court is being asked at a preliminary hearing on Tuesday February 5 to appoint a monitor, Ernst & Young Inc., as an independent third party to oversee these proceedings.
For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets, and that are required to satisfy customer cryptocurrency balances on deposit, as well as sourcing a financial institution to accept the bank drafts that are to be transferred to us. Unfortunately, these efforts have not been successful. Further updates will be issued after the hearing.
If QuadrigaCX is unable to gain access to the cold storage wallets, the executives plan on reimbursing users through any funds gained from selling the exchange.
Nothing more will really be known until the hearing that takes place on February 5th. However, it’s mind-boggling that an exchange has no safeguards in place to not lose access to their cold storage. A system where a single person has complete control over the cold storage is a recipe for disaster, which is clearly now evident. This is a sad situation for everybody, from his wife and family to his friends and to the users who now cannot withdraw their funds.
What do you think about an exchange that has no system in place for allowing several executives to have access to their cold storage in case of a catastrophe? Let us know in the comments below.
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