Would you be willing to fake your own death for $190 million?

They say everyone has a price.

For enough money you can get just about anyone to agree to just about anything. Even fake their own death.

How much would it take for you to fake your own death?

$10 million? $50 million? How about $100 million?

In fact, how about $190 million?

You could live any kind of life you wanted with $190 million. Heck, I would definitely consider faking my death for $190 million.

I mean, I doubt I would actually go through with it. But I’d certainly consider it.

One person who (allegedly) has gone through with it is QuadrigaCX’s CEO Gerald Cotten.

The more that emerges about his story, the more strange and intriguing it gets. And it serves as – yet another – lesson as to why you should never leave your crypto on an exchange.

The strange and suspect disappearance of a crypto CEO

QuadrigaCX is a Canadian crypto exchange.

It is one of the biggest in Canada and was the first to be licensed by the Financial Transactions and Reports Analysis Centre of Canada.

So you would assume it was trustworthy.

But back in October, news emerged that users were having trouble withdrawing their deposits.

Cointelegraph, 10 October:

Quadriga reportedly states that it has been experiencing difficulties accessing $21.6 million of its funds since January when the Canadian Imperial Bank of Commerce (CIBC) froze five accounts belonging to the exchange’s payment processor, Costodian Inc., and its owner, Jose Reyes. The bank purportedly froze the accounts due to an inability to identify the funds’ owners.

Nothing too unusual yet. Just another crypto exchange experiencing teething problems.

In December QuadrigaCX won the court case and everything should have been resolved. Only it wasn’t. Far from it.

CoinDesk, 17 January:

QuadrigaCX customers are complaining they still can’t get their money out more than a month after the cryptocurrency exchange won a court dispute that had held up $19 million of funds.

While that would be worrisome enough, users’ concerns were compounded by the company’s announcement Monday that its CEO and founder, Gerald Cotten, had died more than a month earlier.

In a statement attributed to Jennifer Robertson, Cotten’s wife, the exchange said he died on December 9 from complications arising from Crohn’s disease while traveling in India. The same statement also said QuadrigaCX was working through a backlog of withdrawal requests and had set daily withdrawal limits.

Oh dear.

So the exchange had won the court case, but its CEO had died – over a month earlier.

Why the exchange waited so long to tell its customers this news is a mystery. But at least that accounted for the hold-up in getting withdrawals working again.

At least, you would think so. But things then went from bad to worse.

It emerged that QuadrigaCX could not access any of its users funds because the CEO was the only person with the exchange’s passwords. And he was dead.

From CoinDesk on 1 February:

Troubled Canadian crypto exchange QuadrigaCX owes its customers $190 million and cannot access most of the funds, according to a court filing obtained by CoinDesk.

In a sworn affidavit filed Jan. 31 with the Nova Scotia Supreme Court, Jennifer Robertson, identified as the widow of QuadrigaCX founder Gerald Cotten, said the exchange owes its customers roughly $250 million CAD ($190 million) in both cryptocurrency and fiat.

It turns out that the deceased CEO had “sole responsibility for handling the funds and coins,” according to his wife, Jennifer Robertson.

“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,” she said.

And since he was dead – wink wink – no one could access the exchange’s accounts and the money would be lost forever.

But Cotten (very likely) isn’t really dead

Now we can get into the strange circumstances surrounding Cotten’s “death”.

Firstly, as you can see from the above, his exchange was in big trouble.

Secondly, news has emerged that QuadrigaCX never had users’ funds in reserve in the first place.

Researchers at Zerononcense investigated the case and concluded:

  1. It appears that there are no identifiable cold wallet reserves for QuadrigaCX.
  2. It appears that QuadrigaCX was using deposits from their customers to pay other customers once they requested their withdrawal.
  3. It does not appear that QuadrigaCX has lost access to their Bitcoin holdings.
  4. It appears the number of bitcoins in QuadrigaCX’s possession are substantially less than what was reported in Jennifer Robertson’s (wife of allegedly deceased CEO and Owner Gerry Cotten) affidavit, submitted to the Canadian courts on January 31st, 2019.
  5. At least some of the delays in delivering crypto withdrawals to customers were due to the fact that QuadrigaCX simply did not have the funds on hand at the time. In some cases, QuadrigaCX was forced to wait for enough customer deposits to be made on the exchange before processing crypto withdrawal requests by their customers.
  6. After completing the analysis, it is the author’s opinion that QuadrigaCX has not been truthful with regards to their inability to access the funds needed to honor customer withdrawal requests. In fact, it is almost impossible to believe that this is the case in lieu of the empirical evidence provided by the blockchain.

Thirdly, it took QuadrigaCX over a month to come up with a death certificate for Cotten.

Fourthly, Cotten just so happened to die in India, which, as many, many commenters have pointed out, has a thriving death-faking industry.

From Times of India on 29 January:

Six people, including two Mumbra doctors and a Thane civic-run crematorium employee, were arrested by the Kalyan crime branch unit of Thane police for allegedly preparing death certificates of people who were alive and claiming insurance.

The police said the mastermind, Kalyan resident Chandrakant Shinde (65), in connivance with Tejpal Mehrol, a sweeper at Thane Municipal Corporation’s Mumbra crematorium, and Dr Abdul Siddiqui (38) and Dr Imran Siddiqui (41), who issued at least 10 bogus death certificates, claimed compensation of Rs 80 lakh from two private insurance firms. They also managed to procure death certificates from the TMC of three people who live in Andhra Pradesh and sought Rs 50 lakh as payout, said the police.

Fifthly, and most damming, funds from those supposedly lost wallets have been moving about.

From CCN on 3 February:

A Reddit user with an online alias “Palhello” studied all major wallets that interacted with the exchange’s hot wallet. The user discovered that several wallets have initiated transactions fairly recently after QuadrigCX’s case was publicized.

The user claimed that the four addresses evaluated in the research have been controlled by QuadrigaCX in the past.

“Any address that has input into the hot wallet are wallets that are fully in control of Quadriga (could also be an address that belongs to a Quadriga user whose private key belongs to Quadriga),” the user said.

The user added that regardless of the situation if the private keys held by the CEO were lost, the wallets should not be able to initiate outgoing transactions. The user said:

If these are really cold addresses there should be no outgoing transaction from them if private key is lost. Regardless, the addresses posted are or at least used to be controlled by Quadriga.

However, it cannot be said definitively that the four wallets which interacted with QuadrigaCX’s hot wallet are cold wallets.

And finally, it turns out QuadrigaCX’s co-founder “Michael Patryn” was convicted for fraud in the US and released in 2007.

According to FXStreet, “The fraud was for operating an online marketplace for identity theft. He was also arrested in Canada for laundering money for the fraudulent payment processor, Liberty Reserve.”

I told you it was a strange case, didn’t I?

All we need now is a confirmed sighting of Cotten and the whole house of cards will collapse.

What can we learn from this?

Well, aside from the fact that crypto never fails to entertain. There is another key takeaway from this strange turn of events.

If you’re a regular reader, you’ll have heard this one many times before. But it bears repeating: never store your cryptos on an exchange.

Only ever transfer your cryptos to an exchange if you are actively trading them, and get them off again as soon as you’ve carried out your trades.

As the saying goes, “Not your keys, not your coins.”

As in, if you don’t have the private key of the wallet your cryptos are stored on, you don’t really own them at all.

If you want to know how to store your cryptos safely, you can find out here.

Until next time,

Harry Hamburg
Editor, Exponential Investor

Category: Cryptocurrency

From time to time we may tell you about regulated products issued by Southbank Investment Research Limited. With these products your capital is at risk. You can lose some or all of your investment, so never risk more than you can afford to lose. Seek independent advice if you are unsure of the suitability of any investment. Southbank Investment Research Limited is authorised and regulated by the Financial Conduct Authority. FCA No 706697. https://register.fca.org.uk/.

© 2020 Southbank Investment Research Ltd. Registered in England and Wales No 9539630. VAT No GB629 7287 94.
Registered Office: 2nd Floor, Crowne House, 56-58 Southwark Street, London, SE1 1UN.

Terms and conditions | Privacy Policy | Cookie Policy | FAQ | Contact Us | Top ↑