Today we’re talking about Quadriga. Quadriga is one of the most bizarre recent stories in the crypto industry.

Quadriga, Canada's largest exchange, went bankrupt after its co-founder and CEO Gerald Cotton reportedly died while traveling in India in late 2018. When Cotton died, there were approximately 250,000,000 CAD worth $190,000,000 or more in cryptocurrency and 115,000 customers.

According to Chainalysis, even before Cotton disappeared, Quadriga had never actually invested its client funds in cryptocurrencies. Quoting a 2019 Fortune article, a Chainalysis representative said, "We quickly discovered that as an exchange, Quadriga did not actually have the customer funds reported in the media that were now missing."

These funds never actually existed. What Quadriga actually did with the money customers gave it to buy Bitcoin remains a mystery. So this is just the tip of the iceberg of weird things happening at this company.

Quadriga launched in late 2013 and initially, we only did local transactions. Their total trading volume for all of 2014 was only CAD$7.4 million worth of Bitcoin. In an interview that year, Cotton explained their new system.

We would say custodial assets, so we just send them the money, he said, and we don't need to go to the bank every time we want to deposit money in the bank. We just send money from our Bitcoin app directly to those paper wallets and keep it safe that way.

In fact, they use paper wallets in safes as their banking system. In 2015, the Quadriga team had four employees and raised about $850,000 Canadian, but by June it ran out of money.

All but Cotton left the company, and by 2016 he became the sole director. However, with the help of him and a few contractors, plans for the exchange went ahead, and then 2017 happened. As Bitcoin goes from one thousand to twenty thousand.

Over the course of a year, Quadriga traded $1.2 billion worth of Bitcoin. Sure, that's good for business, but does this sound like a company ready to handle such high volumes? Absolutely not.

In fact, this is a company without anything resembling accounting or real bank accounts. It relies entirely on third-party payment processors. So let's actually talk about who those processors are.

Well, first of all, there are guardians. But in January 2018, Custodian had $28 million frozen by the Canadian Imperial Bank of Commerce, which said they could not determine who owned the money or contact Cotton or his exchange.

Another payment processor used by Quadriga is called WB 21. The company's CEO, Michael Gastore, was indicted by the SEC on charges of aiding and abetting the counterfeiting of $165 million in micro-cap stocks shortly after Quadriga's collapse.

And, by the way, this isn't Michael's first run-in with the law. In 2010, he was sentenced to 18 months' probation in Switzerland for commercial fraud and counterfeiting. The list goes on. Quadriga’s other payments processor, Crypto Capital, was accused in an April 2019 lawsuit by New York Attorney General Crypto Capital of losing, stealing or absconding with $851 million sent to them by Bitfinex customers.

And, of course, Quadriga co-founder Michael Patron. Following Cotton's quote. Both The Globe and Mail and Bloomberg identified the patron as originally named Omar Dinani.

Dinani, a California resident, pleaded guilty to identity theft in 2005 and served 18 months in federal prison. Additionally, he pleaded guilty to burglary and theft and was deported to Canada a few years later.

Now, Patron later emerged on the defy community as an anonymous founder under the username Zero x Sifu, and ended up deploying some of the most shocking rugs of the past bull cycle. The key to all of this is that Quadrigo was skeptical from the start.

Cotton's widow, Jennifer Robertson, claimed that on December 8, the couple, who were traveling in India, went to a hospital in Jaipur, where Cotton was diagnosed with a range of illnesses, including septic shock.

Apparently, he suffered complications from Crohn's disease and he died of cardiac arrest the next day. Remember, he was 30 years old. Now, people immediately become super skeptical.

Cotton's will was signed just a few weeks ago. In fact, 12 days before his death, his widow Robertson left a $9.6 million fortune that included a plane, a sailboat and multiple properties.

In January 2019, quadriga announced that they were going into protection, sorry guys, not being able to access any of their customers' funds. Access to the exchange's cold wallet was allegedly inaccessible, as Cotton appeared to be operating the exchange without proper security setup and only believed he had access to the wallet.

There should be a dead man switch that sends this message after his death. But it seems it was never implemented. So, boom, theoretically, you have $250,000,000 worth of customer deposits gone.

Now, of course, this led people to think, one, that the quadriga was a scam from the beginning, and two, many people further suggested that Cotton faked his own death. Now, regarding the second point, the authorities never really weighed in.

But regarding the first point, in June 2020, the Ontario Securities Regulatory Commission did officially determine that Quadrigo was a scam and a Ponzi scheme. In a report they released, they said Cotton opened the account under an assumed name.

He attributed fictitious currency and cryptocurrency balances to himself and used these fictitious balances to conduct transactions. The SEC report said what happened at Quadriga was an old-fashioned fraud wrapped in modern technology.

On December 19, Zack XBT wrote on chain Sleuth that five wallets attributed to Quadriga CX accidentally moved 104 BTC on December 17. This is the first time in years. Seems to be resurrected from the dead.

Now, bankruptcy estate administrators Ernst and Young are aware of the wallets in question, but it is believed no one other than Cotton, who may be deceased, has access to them. Ernston Young initially lost 104 Bitcoins by mistakenly transferring them to a Quadriga cold wallet early in the bankruptcy proceedings, rather than to a wallet controlled by the bankruptcy estate.

Ernst & Young claimed they did not have access to the wallets at the time. Following the new move, Magdalena Gronowska, a member of Quadriga’s creditors’ committee, said that EY had not moved Bitcoin, going on to say that Quadriga funds had been moved, citing the insolvency examiner.

Thanks to blockchain investigators for following the process. We are working to gather more information and hope we can recover the stolen funds. On Tuesday, EY issued a statement saying it was aware of the movement of funds.

They said they have worked with management and others to recover Bitcoin transferred to these wallets. However, the private key associated with the cold wallet has not been found.

Despite the detailed review, both Ernst & Young and the creditors committee said they were investigating the matter. But as you might imagine, the strange flow of money has largely reignited questions about whether Gerald Cotton may have faked his own death in India.

As was widely suspected at the time, a media entrepreneur named Stephen Punswani retweeted Zack XBT and wrote Funny Story. We have the only candid interviews with Quadriga CX staff about what everyone actually did, what happened after India, and basically the rights to Cotton's life story haven't even been completed yet.

The Canadian government preferred a dead man's narrative, so the case was closed.