Crypto exchange founder’s death leaves $190M locked up
After the founder of Canada’s biggest cryptocurrency exchange, Quadrigacx, died unexpectedly, about 115,000 clients have been unable to retrieve $190 million in funds — because the owner was the only one who knew the password to access holdings, the company said.
Gerald Cotten, 30, died of complications with Crohn’s disease while doing philanthropic work in India in early December, according to a post on Quadrigacx’s Facebook page. The company didn’t announce Cotten’s death until more than a month after he died, and as customers panicked and tried to withdraw their funds, Quadrigacx’s website went down.
When Quadrigacx broke its silence a week later, the company revealed it had filed for creditor protection in the Nova Scotia Supreme Court, according to reporting from Coindesk. Cotten was the sole person responsible for transferring Quadrigacx funds between the company’s “cold wallet” — secure, offline storage — and its “hot wallet” or online server, according to court documents. Very little cryptocurrency was stored in the hot wallet for security purposes. Cotten’s laptop was encrypted, and his widow, Jennifer Robertson, and the expert she hired have been unable to access any of its contents. The company had no corporate bank accounts and used third-party services to manage payments and withdrawals.
“For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets, and that are required to satisfy customer cryptocurrency balances on deposit, as well as sourcing a financial institution to accept the bank drafts that are to be transferred to us,” Quadrigacx’s Board of Directors wrote in a letter to customers on Jan. 31. “Unfortunately, these efforts have not been successful.”
The debacle highlights the problems with cryptocurrency’s lack of regulation. It’s not issued by a government or controlled through a centralized financial institution, leaving exchanges such as Quadrigacx with near total control over investors’ assets, and making them vulnerable to hackers or other mishaps.