Crypto Exchange Loses Password, Now Owes Users $190 Million

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This past December, Quadriga’s 30-year-old CEO Gerry Cotten died of Crohn’s disease while in India, subsequently, his company filed for creditor protection as customers could not withdraw their funds. QuadrigaCX chose not to reveal the details of its filing but CoinDesk obtained court documents that include the late CEO’s widow’s testimony.

Jennifer Robertson, identified as Cotten’s widow, testified to the Nova Scotia Supreme Court that the exchange owes $250 million CAD ($190 million USD) to roughly 115,000 users. The debt is composed of $70 million CAD in fiat and $180 million CAD in crypto.

According to Robertson’s testimony, while there’s a chance QuadrigaCX users could see some of their money back, most of it is inaccessible as they kept it in “cold storage” that only the late Cotten had access to.

“The normal procedure was that [QuadrigaCX founder and CEO Gerald Cotten] would move the majority of the coins to cold storage as a way to protect the coins from hacking or other virtual theft.”

Cold storage refers to securing cryptocurrency on offline wallets that are virtually impossible to hack. The only way to access a cold wallet is through the user’s password, which can’t be recovered through any means if forgotten.

According to her testimony, company policy allowed for a “minimal amount of coins” to be stored in hot wallets (online wallets) and that it’s possible that some funds are stored on other exchanges, but they have yet to confirm this.

User entering cryptocurrency into their wallet
(Photo by David Ryder/Getty Images)Featured image credit: David RyderGetty Images

Quadriga has requested the court to enter a stay of proceedings. This would legally stop any potential lawsuit coming their way, which they claim is in their users’ best interest. They argue a stay would give them more time to find the crypto they do have and to make up the rest by selling their platform, which would devalue significantly if sued by over a thousand of its users.

This scandal began prior to Cotten’s death, however, as users have been unable to access their funds for months. Trouble began in January 2018 when the Canadian Imperial Bank of Commerce (CIBC) froze multiple Quadriga accounts, claiming it was unable to determine their origin and rightful ownership.

Quadriga won its case against the CIBC but users still could not withdraw their funds. CoinDesk reports that this is because of its payment processors being unable to find banks willing to do business with Quadriga.

This has led to accusations and conspiracy theories regarding Cotten’s untimely demise, but his widow presented his death certificate as evidence and CBC reports the Canadian government confirmed his death.