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Hell broke lose earlier in the year when the Canadian cryptocurrency exchange QuadrigaCX was declared bankrupt. The crypto exchange filed for bankruptcy after the sole director, Gerald Cotten, passed away with the password to the firm’s funds.
Cotten allegedly kept the firm’s funds in a cold wallet in his laptop, away from the prying eyes of the public. Tragedy struck when he passed away without revealing the password to the wallet, while he reportedly was the only one who knows the password to the wallet. After his death, the crypto exchange was compelled to fold up as $134 million of the customers’ funds were trapped in the cold wallet.
However, the administrators in charge of the bankruptcy case came up with some unpleasant findings which showed that the deceased director was involved in some financial shenanigans.
The administrators found that QuadrigaCX has been in the wrong for so long, that bankruptcy is just one of the many troubles in store for the firm. From the findings, it is obvious that the cryptocurrency exchange never followed due processes from the onset. The exchange was found terribly lacking in the way it managed customers’ and company’s funds, and how it handled financial accounts. It in no way followed due business processes.
Crypto Exchange Mess
Some of the wrongdoings Cotten allegedly made include not keeping any accounting records nor any clear distinction between users’ crypto funds and QuadrigaCX’s. Both funds appear to be held at the same place, giving rise to false representations. Funds received from users are supposed to be kept for funding withdrawals; however, that isn’t the case here as the administrators found that the users’ funds have been used by the crypto exchange for other purposes besides funding users’ withdrawal.
Other fraudulent activities found include inflating revenues by holding alias accounts with the crypto exchange. The CEO allegedly held alias accounts with its own firm, and thus making fake deposits and trades to significantly increase the revenue figure on paper. This also made room for Cotten to withdraw funds to personal accounts, a move strongly prohibited by standard business processes.
Even worse, the administrators revealed that QuadrigaCX failed to maintain the users’ cryptocurrencies in its own hot or cold wallets; instead, it dispersed the digital coins to different accounts held by Cotten in some other crypto exchanges.
Fortunately, the monitors appointed for the case have been able to recover a significant amount in both fiat and virtual currencies; however, there is still so much to be recovered to make up for the consumers’ funds.