CRYPTOCURRENCY COMPANY’S ACCOUNTING SYSTEMS ‘DO NOT EXIST.’

TORONTO • Piecing together the financial picture of one of Canada’s biggest cryptocurrency exchanges is proving to be a unique challenge.

According to a court-appointed monitor for Quadrigacx, the company does not have accounting records and did not “systematically” track incoming and outgoing payments. It also does not have a bank account in its name.

Those circumstances have come to light as part of Quadriga’s filing for creditor protection after finding itself unable to track down millions of dollars in bitcoin and other cryptocurrency following the sudden death of Gerald Cotten, its founder and CEO.

One of the roles of Quadriga’s monitor, Ernst & Young, is to review and comment on various financial aspects of the company, such as its cash flows. That may prove challenging, according to EY’S pre-filing report.

“The applicants’ treasury and accounting systems either do not exist or are not capable of recording and producing even the most basic of accounting summaries for the proposed monitor to review and comment upon,” Ernst & Young said in the Jan. 31 report, which was only recently published online as part of Quadriga’s legal proceedings.

Quadriga had a request for protection from creditors approved on Tuesday by the Supreme Court of Nova Scotia. The company said it ran into liquidity issues after trying for weeks, without success, to locate “very significant cryptocurrency reserves” and to find a financial institution that would accept bank drafts owed to it.

“Since we were unable to resolve these issues in a timely fashion, we did not want trading to continue on our platform,” the company’s website said. “We filed for creditor protection to help resolve these matters and preserve the interests of our customers.”

The plight of the company and its customers has grabbed headlines worldwide, reigniting concerns around corporate governance and regulation of cryptocurrency and cryptocurrency companies.

According to the monitor, Quadriga owes about 92,000 users about $260 million in cash and cryptocurrency. One user is said to have a claim of $70 million.

“With an inability to access the affected funds and funds held by third party processors, and locate and/ or access the missing coins, the applicants are insolvent on a balance sheet and going-concern basis,” EY said.

Sorting through Quadriga’s financials has taken some doing.

“The applicants do not have bank account(s) in their name,” EY said in its report. “Furthermore, the proposed monitor has been advised that the applicants do not have accounting systems or accounting records available to it.”