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  • Blog \ Quadriga CX – Scam of the millennium or a bad luck?

    Quadriga CX – Scam of the millennium or a bad luck?

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    Ilya Krupin
    CEO, HiCoTrading.com

    During the years of ICO campaigns, which had overwhelmed the startup market, offering tokenization and disruption in all possible areas of human activity, we have witnessed a lot of smart fraud schemes, resulting in millions of dollar lured out of investors’ pockets.

    However, a long path of historical development is the perfect evidence that people rarely learn on their mistakes.

    Quadriga CX made the headlines more than once – the sudden death of its CEO Jerry Cotten, which happened on December 9, 2018, a growing uncertainty among investors and one of the most significant money loss in the known crypto history.

    More than two months have passed since the mysterious death of company CEO – rumor has it, he passed away, being on a trip to India from complications after Crohn’s disease – and the company cannot find the way to access the funds.Most of the exchange’s funds were stored in cold storage wallets. Funny (or not) thing is that Cotten alone was responsible for their safety, and he also kept all the keys by himself. Now,the company is unsuccessfully trying to find them.
    Officially, QuadrigaCX’s administration filed an application for investor protection in accordance with the current legislation on February 1. However, t the moment the funds in the amount of 375 000 Canadian dollars ($286 000) is all they have, while their debt to investors is amounted in 260 million ($198 435 000)!

    Moreover, employees of the British auditing company Ernst & Young, appointed to the role of an independent third party, reported that Quadriga failed to access the wallets and determine whether they contain cryptocurrency.

    Next, according to the Globe and Mail, Cotten worked primarily through his home computer, access to which is encoded. His wife Jennifer Robertson said that she did not know the password and recovery key, and could not find them despite the diligent search. Robertson had even hired an expert on cybersecurity, but hacking attempts were unsuccessful! The heads of many exchanges have noticed that the situation when the CEO controls access to assets alone, is far from typical because it makes it a perfect target for criminals. The head of the Vancouver stock exchange Einstein Michael Gokturk said, “It’s like constantly carrying around millions of dollars in cash in your pockets while walking in a bad neighborhood”.

    One exciting detail unveiled later – Ethereum coins worth $1 million were transferred from QuadrigaCX to other platforms in December, on the eve of the death of the exchange founder Gerald Cotten! Some transactions from the QuadrigaCX “hot” wallet- amounted to more than 9,000 ETH – were sent to the exchanges Binance, Kraken, and Poloniex. It is still unclear who initiated these transactions – users or representatives of the exchange. However, these cryptocurrency flows have come under the scrutiny of the community.

    Next question with no answer is how much money QuadrigaCX held in cold storage at all and how much- in hot wallets. According to a statement in a court of Cotten’s widow, Robertson Jennifer, the company kept only “the minimum number of coins on a “hot” wallet with access to the Internet.

    QuadrigaCX officials cannot get access to the wallets with the investors’ funds worth about $ 190 million. The conflict is brewing hot already.

    There are already tons of user’s stories over the net, sharing their “success” stories about the experience of interaction with an infamous exchange. For example, a California-based engineer lost his life savings after using QuadrigaCX’s cryptocurrency exchange for remittance.

    Tong Zou, 30, said in an interview with Bloomberg that he had opened a withdrawal request at QuadrigaCX in October 2018. According to his statements, he was planning to move to Canada at that time. So, he purchased Bitcoins in the US and transferred them to his Canada-based Quadriga CX exchange account for a quick fiat withdrawal.

    “I wasn’t using it for trading — I just wanted to move my money over to my Canadian bank account,” said Zou.

    However, the withdrawal requests made by Zhou and other 115,000 people met a dead-end after QuadrigaCX declared itself insolvent.

    This exciting story is sure to continue. We are going to make the full story after more details are revealed and official investigation takes place. Stay tuned!