Canada’s Regulators Might Help Crypto Exchange QuadrigaCX’s Victims After All

Provincial securities regulators in British Columbia, Canada, won’t be investigating the QuadrigaCX scandal. However, new developments could see Canada’s largest securities body, the Ontario Securities Commission (OSC), begin an investigation.

On Friday, according to Reuters, the OSC has confirmed in a statement it will be looking into cryptocurrency exchange QuadrigaCX, where currently $190 million in cryptocurrency has been lost. Though an OSC spokesperson did not confirm if the regulator will conduct a formal investigation, it said:

“Given the potential harm to Ontario investors, we are looking into this matter.”

The OSC’s role, as the Ontario provincial arm of the Canadian Securities Administrators (CSA) is to protect regional investors. In its “2018-2019 Statement of Priorities,” the body committed to “innovative regulation” of cryptocurrencies and actively encourages fintech start-ups in the province.

Canada has yet to beef up crypto regulation and add a more comprehensive legislative framework for the sector. But it has also taken action against illicit ICO offerings and the OSC may well decide to pursue QuadrigaCX further.

Allan Goodman, co-chair of a technology group at Goodmans LLP believes the OSC would first check if QuadrigaCX has breached securities laws in Canada. He stated:

“For example, should (Quadriga) have been registered as an exchange and were any securities laws breached with respect to the trading of the coins on the exchange?”

Earlier, the British Colombia Securities Commission (BCSC) said QuadrigaCX was outside of its jurisdiction. It will take no action to benefit those affected.

A BCSC spokesperson told Bloomberg in an email:

“[BCSC] does not currently have any indication that Quadriga CX, the crypto asset trading platform, was trading in securities or derivatives or operated as a marketplace or exchange under British Columbia securities laws.”

QuadrigaCX – An Elaborate Scam or an Unprecedented, Unexpected, Scenario?

The QuadrigaCX scandal is unprecedented. Its founder Gerald Cotten, reportedly the only person with access to QuadrigaCX cryptocurrency cold storage died suddenly in India. There were no protocols in place to allow another QuadrigaCX employee access and now no one can reach the $190 million belonging to QuadrigaCX users.

There is ongoing speculation about whether Cotton is really dead. Or if this could be some elaborate scam, as well as if QuadrigaCX really held cryptocurrency balances in cold storage.

One user, Ethan Lou, with $2,000 invested in the platform and who met with Cotten in 2014, writing for the Toronto Star says:

“Cotten’s death in India is suspicious. Vancouver’s Quadriga had been having cash-flow problems for months. Twelve days before Cotten’s death, the man made a detailed will, including money for his Chihuahua dogs — how did he neglect his laptop password?”

Last Tuesday, a judge gave QuadrigaCX a 30 day stay on claims from creditors and potential lawsuits while the exchange continues to try to gain access to Cotton’s laptop and the millions in lost cryptocurrency.


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Author: Melanie Kramer 
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MyCrypto CEO: QuadrigaCX May Not Have Ethereum Cold Wallet, Where’s the Missing $150m?

Taylor Monahan, the founder and CEO of MyCrypto, one of the most widely utilized non-custodial wallets in crypto, has said that QuadrigaCX may never have had an Ethereum cold wallet.

Crypto Wallet CEO Raises Questions about QuadrigaCX’s Claims

After evaluating three main Ethereum addresses used by QuadrigaCX, Monahan said that all of the addresses were likely owned by customers, not by the exchange.

“Based o[n] the actions via ShapeShift, I can only assume they were trading the ETH for BTC on Bitfinex/Poloniex as well. Regardless, these were customer funds. All 3 main addresses ultimately receive ALL customer deposits, which were then sent to a variety of exchanges,” she said.

Earlier this month, as CCN extensively reported, Canada’s largest crypto exchange QuadrigaCX lost its access to customer funds worth $190 million in crypto and fiat.

The exchange stated that its CEO, who had sole control of the exchange’s cold wallet private keys, passed away and the firm is no longer able to access the funds as a result.

Experts Skeptical Toward QuadrigaCX Case, Can $150 Million in Crypto be Recovered?

Throughout the past several days, several reports claimed that QuadrigaCX’s cold wallet addresses have been moving funds.

But, most of the addresses turned out to be hot wallets given the size of the transactions initiated by the wallets.

Large exchanges often store the majority of user funds in cold wallets that are stored offline and cannot be targeted by hackers.

Exchanges like Binance and Coinbase are known to have implemented sophisticated systems to safeguard and protect holdings stored in cold wallets.

Before initiating transactions from cold wallets, major exchanges go through weeks to even months of planning to ensure no technical mishap occurs.

The three main addresses of QuadrigaCX evaluated by MyCrypto CEO Taylor Monahan sent many transactions to different wallets including the addresses of Bitfinex and Poloniex.

Considering that cold wallets of exchanges usually deal with millions of dollars in customer funds, the several thousand ETH sent out by the three wallets show they are unlikely to be the cold wallets of QuadrigaCX.

Speaking to CCN, Monahan said she has yet to evaluate the main ETH address of QuadrigaCX that contains more than 500,000 transactions.

But, based on the pattern of the three addresses, it is entirely possible that QuadrigaCX never had an Ethereum cold wallet.

“I’m seeing NO indication of Quadriga ever having cold / reserve wallets for ETH,” Monahan said.

The MyCrypto CEO added:

“Oh, and just in case you weren’t shaking your head enough, don’t forget that Quadriga ran an exchange with KYC. They have a pile of user’s KYC data. They could turn around and open an exchange account with any of that KYC data to move money.”

Red Flags

In previous interviews, as revealed by Cornell Professor Emin Gün Sirer, former QuadrigaCX CEO Gerry Cotten claimed that the exchange employed a multi-signature system to protect user funds.

A multi-signature system allows individuals or businesses to hold private keys to a certain address. Only when the majority of the keys are combined can the individuals or businesses obtain access to the funds stored in the address.

However, the exchange evidently had not employed a multi-signature system in all of its cold wallets because it was reported that the CEO had full control over the funds.

Jesse Powell, the CEO of Kraken, also raised suspicion on the case involving QuadrigaCX given the absurdity of the situation.

“We have thousands of wallet addresses known to belong to QuadrigaCX and are investigating the bizarre and, frankly, unbelievable story of the founder’s death and lost keys. I’m not normally calling for subpoenas but if the Royal Canadian Mounted Police are looking into this, contact Kraken,” he said.


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Author: Joseph Young 
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