The Quadriga cryptocurrency exchange that saw millions of dollars disappear just as its founder died was a “fraud” and Ponzi scheme, according to the Ontario Securities Commission. CBC.ca reports: The regulator said Thursday that Vancouver-based Quadriga’s late founder Gerald Cotten committed fraud by opening accounts under aliases and crediting himself with fictitious currency and crypto asset balances, which he traded with unsuspecting clients. Cotten, the OSC said in a new report, ran into a shortfall in assets available to satisfy client withdrawals when the price of the crypto assets changed. He started running a Ponzi scheme that covered the shortfall with other clients’ deposits, the agency determined.
“What happened at Quadriga was an old-fashioned fraud wrapped in modern technology,” the OSC said. “Quadriga did not consider its business to involve securities trading and it did not register with any securities regulator. This lack of registration facilitated Cotten’s ability to commit a large-scale fraud without detection. So did the absence of internal oversight over Cotten.” On Thursday, the OSC attributed about $115 million of the $169 million clients lost to Cotten’s “fraudulent” trading. Another $28 million was lost when Cotten used client assets on three external crypto asset trading platforms without authorization or disclosure. The OSC said he also misappropriated millions in client assets to fund his “lavish” lifestyle and because he was in sole control of the company ever since 2016, he “ran the business as he saw fit, with no proper system of internal oversight or controls or proper books and records.” “Ernst & Young, Quadriga’s bankruptcy trustee, was only able to recover $46 million in assets to pay out to clients,” the report adds.