Home > Crypto > First Quadriga Monitor Report: $460k in BTC “Inadvertently” Sent to Cold Wallet | Bitcoin Magazine

First Quadriga Monitor Report: $460k in BTC “Inadvertently” Sent to Cold Wallet | Bitcoin Magazine

First Quadriga Monitor Report: $460k in BTC “Inadvertently” Sent to Exchange's Cold Wallet

According to the latest court documents in the ongoing QuadrigaCX case, the exchange sent roughly $470,000 CAD (approximately $355, 000 USD) worth of bitcoin from a hot wallet to a cold-storage wallet on February 6, 2019.

Ernst & Young’s first report as monitor of scrutinized Canadian bitcoin exchange QuadrigaCX (QCX) complicates the story the exchange has given for its lack of access to company funds following the death of its founder and CEO, Gerald Cotten.

The court document states, “On February 6, 2019, Quadriga inadvertently transferred 103 bitcoins valued at approximately $468,675 to Quadriga cold wallets which the Company is currently unable to access. The Monitor is working with Management to retrieve this cryptocurrency from the various cold wallets, if possible.”

Regarding the liquidation process for distribution of QCX funds to the exchange’s users, the report says that Ernst & Young has established a “Disbursement Account” per the Nova Scotia court’s orders, “and [it] received $150,000 from Ms. Jennifer Robertson” (Cotten’s widow) to kickstart the account.

The document continues to clarify that the exchange’s remaining hot-wallet funds (some $902,000 CAD, of which $700,000 CAD is in bitcoin, $130,000 CAD in ether and the rest in bitcoin fork coins and litecoin) will be transferred to cold storage under Ernst & Young’s management.

In an affidavit that comprises part of the ongoing legal proceedings in the Court of Nova Scotia, Robertson swore that the exchange had no access to the cold storage because the keys and passwords are stored in one of Cotten’s encrypted wallets.

According to the document, Ernst & Young has also seized Cotten’s computer hardware and accessories, which Robertson originally turned over to retired cybersecurity professional Chris McBryan of McKalian Sensors Inc. to crack.

“The devices taken into custody from Mr. McBryan include two (2) active laptops, two (2) older model laptops, two (2) active cell phones, two (2) older ‘dead’ cell phones and three (3) fully encrypted USB keys. … The Monitor’s forensic group is currently working with Mr. McBryan to better understand actions that have been taken in respect of the devices and what information has been obtained from the devices to date to determine what forensic next steps will be employed. In addition, the Monitor was made aware of and took steps to retrieve Mr. Cotten’s desktop,” the report reads.

Recovering Lost Funds

The document also confirms that Ernst & Young has contacted nine of the known payment processors that served as QuadrigaCX’s makeshift banking partners. The firm has not yet received the $30 million CAD in bank draft notes that both the court affidavit and the report say are under the auspices of Stewart McKelvey, the law firm representing both Robertson and QuadrigaCX. One of these processors allegedly owes the exchange $25.2 million of the $30 million in bank notes QuadrigaCX holds. Once the banks that these processors work with clear wires for these bank notes, the funds will fall under Ernst & Young’s management.

QuadrigaCX had been using these payment processors as a stand-in for proper banking relationships. As sources close to the matter, who asked to remain anonymous, told Bitcoin Magazine, QuadrigaCX has a long history of problems in maintaining banking relationships, a tribulation best represented by CIBC freezing $25 million CAD of funds associated with the exchange in 2018. This freeze was one of many unhappy incidents that have come to define the exchange, including losing millions in ether in 2017 to a smart contract bug and a reputation for month-long withdrawal times.

Speculation and Rumors

Since Gerald Cotten’s death, wild speculation over QuadrigaCX’s solvency, the identity of a since-distanced cofounder Michael Patryn and whether Cotten is actually dead have surfaced in the community. A purported QuadrigaCX contractor, one of the seven that made up the company’s employee structure until recently, posted a reddit AMA on r/QuadrigaCX2 with potentially damning accusations that Cotten and Robertson worked in tandem to scam the exchange’s users. These accusations remain unsubstantiated thus far.

Canadian lawyers will convene on February 14, 2019, in Halifax in a bid to represent some 111,000 users affected by the exchange’s misfortune, Bloomberg reports. In its February 5 ruling, the Court of Nova Scotia granted QuadrigaCX creditor protection, guarding it from further court action until the exchange and Ernst & Young are able to investigate its financial situation.


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