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A new report on QuadrigaCX, the exchange that lost $190 million in customer funds, claims to have located $400,000 in assets belonging to it. The report, fourth in a series by court-appointed monitor Ernst & Young, also posits that bankruptcy is the best way forward for the company.
QuadrigaCX was the largest crypto exchange in Canada and made headlines in February when it was revealed that the CEO had died, and was supposedly the only person with access to $190 million in customer funds. However, subsequent evidence has revealed that the exchange faced financial difficulties and that most of the money simply doesn’t exist. The latest report appears to confirm this, with the exception of the $400,000 that was discovered. It also makes some key recommendations for the ongoing investigation.
The monitor argues that bankruptcy is the most viable option, as QuadrigaCX appears unsalvageable. A key benefit in pursuing bankruptcy status is that it allows for the sale of the company assets, which could be used to claw back lost funds. Alternatively, Ernst & Young could become a “super monitor” which would give it more influence over the next stage of proceedings, but this wasn’t examined in detail.
Ernst & Young locates $400,000 of assets
In compiling the report, the monitors sent queries to payments processors and other businesses who had been in contact with QuadrigaCX. Some of them were willing to cooperate while others appeared more reluctant to do so.
According to the report, POSConnect, which is a payments processor, has confirmed that it owes QuadrigaCX $300,000, but the money will not be accessible until April 28, 2019.
The monitor also believes money-transfer company, VoPay possesses $116,000 of the missing funds. However, per the report, VoPay said it would not make this money available unless it's granted indemnity from liability, which the monitor is unwilling to do. Instead, it plans to exert further pressure on VoPay to release the funds.
Digital bank WB21—which has since rebranded as Black Banx—held money from QuadrigaCX during 2017, and states that it couldn’t establish who the money belonged to. According to reports, WB21 has $9 million of the missing QuadrigaCX funds. However, in the latest Ernst & Young report, WB21 said it only owned about $14 belonging to QuadrigaCX.
The report was critical of the digital bank's efforts: “WB21 has been uncooperative with each of the requests of the monitor and has not provided even basic information.”
Ernst & Young has requested support from the court to gain access to WB21 documents. It also believes that a further $21,000 or $36,000 may be held by payment processor Alto.
Restrictions proposed on assets belonging to Cotten’s widow
The report said that QuadrigaCX funds may have been used to buy assets held outside of the exchange. In particular, it claims that corporate and personal boundaries between QaudrigaCX’s founder Gerald Cotten and his widow, Jennifer Robertson, were not formally maintained.
As a result, it recommended that an asset preservation order be placed on all relevant assets, to stop them being sold. This encompasses all the assets owned by the Cotten Estate, Jennifer Robertson, and various other enterprises belonging to Cotten and Robertson. These include the Seaglass Trust, Robertson Nova Consulting Inc., and Robertson Nova Property.
Prior to the report, questions had been raised over the number of properties bought by Robertson throughout his relationship with Robertson, and how they were funded. It was also known that some of these properties were moved away from ownership by the exchange and placed under companies which Robertson was the sole director of.
The monitor will be publishing one final report on the case but, judging from the number of questions that remain to be addressed, that probably won’t be enough.