QuadrigaCX Co-founder Gerald Cotten Used User Cryptocurrency for Own Trading: EY Report

By Mary T. | June 21, 2019
QuadrigaCX Co-founder Gerald Cotten Used User Cryptocurrency for Own Trading: EY Report

New shocking details related to the now-defunct cryptocurrency exchange QuadrigaCX have come to light as court monitor EY filed its fifth report.

The report was filed on June 19 with the Supreme Court of Nova Scotia, Cointelegraph reported. In it, EY has underscored its concerns over “significantly flawed” operating infrastructure of the exchange, saying:

“Quadriga’s operating infrastructure appears to have been significantly flawed from a financial reporting and operational control perspective. Activities were largely directed by a single individual, Mr.[Gerald] Cotten and as a result, typical segregation of duties and basic internal controls did not appear to exist.”

EY went on to state that it could not find any accounting records and believe that there was no segregation of assets between Quadriga funds and user funds. It further pointed out that the funds held by the exchange on behalf of its customers may have been used for purposes other than to fund user withdrawals.

The report further reveals that Quadriga not only maintained user cryptocurrency in hot and cold wallets but also transferred it to other exchanges and engaged in trading activities.

“It appears that User Cryptocurrency was traded on these exchanges and in some circumstances used as security for a margin trading account established by Mr. Cotten. Trading losses incurred and incremental fees charged by exchanges appear to have adversely affected Quadriga’s Cryptocurrency reserves,” the report said.

EY also said that it was unable to confirm the identity of wallet holders to which “substantial amounts of Cryptocurrency were transferred.”

Cotten is also said to have created accounts under aliases allegedly “Unsupported Deposits were deposited and used to trade within the Platform resulting in inflated revenue figures, artificial trades with Users and ultimately the withdrawal of Cryptocurrency deposited by Users.”

QuadrigaCX ran into problems after its founder Gerald Cotten passed away in December and with this, it lost access to millions of dollars worth of customer funds. At the filing date, around 76,000 users were owed a combination of fiat and cryptocurrency by Quadriga, valuing at a total of C$214.6 million.

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