The Canadian Government Wants Victims of QuadrigaCX to Pay Their Taxes

The Canadian Government Wants Victims of QuadrigaCX to Pay Their Taxes

Published: April 1st, 2020

Canada’s national tax authority wants the bankruptcy trustee for scandal-wracked crypto exchange QuadrigaCX to hand over information about its users.

The now-defunct crypto startup was Canada’s largest crypto exchange, but it abruptly closed shop last year when its CEO, Gerald Cotten, died suddenly while on honeymoon in India.

Cotten was thought to have taken CDN $135 million worth of customer funds with him to the grave. But investigators later found that the company’s cold wallets had been emptied – and the digital cash remains missing to this day.

Canada’s Revenue Agency (CRA) is seeking information from bankruptcy trustee about the to the exchange’s 115,000 customers. The tax body wants to pore over some 750,000 documents held in EY’s dossier on the case, which include information on Cotten’s computers and smartphones; company emails; tax returns; and documents from Quadriga’s former legal counsel.

EY says it will comply with the order, though caveated its reply by saying the process of responding to the agency’s legal production demand would require ‘significant effort’ and would involve the production of customers’ personal information.

Canada’s courts have already directed EY to comply, but the company has also said that most of the information sought by the agency doesn’t actually exist, or isn’t available.

A strange saga with many twists and turns

The Quadriga CX story gripped the crypto industry last year while feeding into public and policy concerns about the odd practices of some blockchain startups.

What began as a startup success story turned into a tawdry tale involving a marriage, a failed embalmment, disappearing money, a last-minute will, and the strange death of someone solely responsible for assets worth some $190 million.

In December 2018, QuadrigaCX’s 30-year-old co-founder and CEO, Gerald Cotton, died suddenly on honeymoon in India. He was the only person in the company with access to the $190 million of funds stored on the exchange.

Dying from a disease that people his age don’t normally die from, in an exotic destination where fake death certificates can be readily attained — immediately aroused suspicion from customers and crypto watchers alike.

Journalists latched onto the story and uncovered a sequence of odd events and strange circumstances in the year leading up to Cotten’s untimely demise.

As reported in the Toronto Globe and Mail, the company operated on an unconventional management and governance structure.

"Quadriga had no physical office, no corporate bank accounts or even an accounting department. Cryptocurrency exchanges in Canada are not regulated. No one was watching over the company."

The exchange found itself in financial difficulties that could have meant the loss of considerable amounts of users’ money. In the aftermath of Cotten’s death and the disappearance of so much money, customers have wondered openly if criminal conspiracy has played a part in Quadriga’s closure.

CEOs of the Kraken and Coinbase have tacitly endorsed this view, with Kraken offering a $100,000 reward for new information about the case.

A great start, then rapidly downhill

Founded in 2013, QuadrigaCX was successful almost from the outset. It quickly became Canada’s biggest crypto exchange.

But in the 12-months leading up to Cotton’s death, things started going downhill. In January 2018, the Canadian Imperial Bank of Commerce (CIBC) put a freeze on $30 million of the exchange’s funds because it couldn’t identify the owners. Customers struggling to access their funds were understandably livid. The bad press led to diminishing numbers of people using the exchange, which plunged its daily trading volume to a low of $600,000 in October 2018.

The events didn’t seem to dim Cotton’s positivity or expectations of success. He tied the knot in Scotland that same month and set off on an extended luxury honeymoon two months later.

Before he left, however, Cotten made a will leaving all his financial assets (worth some $9.6 million) to his new wife, Jennifer Robertson, making her the sole executor of his estate. He left his sailboat to his parents, and his Cessna 400 aeroplane to his brother, Bradley.

Cotton and Robertson had been together for less than two years. Despite the business’s apparent difficulties, they found a way to purchase 16 properties together.

Curiouser and curiouser, so it's not surprising that several theories have emerged about what happened to the money, and the strange goings-on at the company.

Users have been sceptical of the story surrounding Cotten’s death – with some even asking to see a death certificate.

His death seemed to wrap-up a whole host of financial problems at QuadrigaCX – mainly by taking the “funds” with him to the grave. But there were other odd factors surrounding his death.

Not long after arriving in India, Cotten was admitted to hospital in Jaipur, with symptoms including watery stools, abdominal pain, and vomiting.

After his death, the hospital sent his body back to the couple’s hotel. It was later transported to a funeral home – but the embalmer refused to carry out the procedure as the body had arrived from the hotel, rather than directly from the hospital.

Another odd turn

The company’s strange saga took another odd turn in February 2019 when court documents showed that more than 100 bitcoins had been ‘inadvertently’ sent to the deceased founder’s cold wallet.

A report filed by EY revealed that the transfer occurred on Feb. 6 – the day after courts granted Quadriga protection against creditor lawsuits.

With a market value of ca. USD 370,000, the Bitcoins made up more than two-thirds of the cryptocurrencies sitting in Quadriga CX’s hot wallet, and more than half the funds thought to be retrievable by creditors.

Other cryptocurrencies held in the exchange’s hot wallet include Bitcoin Cash, Bitcoin Cash SV, Ether, Litecoin, and Bitcoin Gold.

According to court documents filed in Nova Scotia (Cotten's home province), last year, precisely who transferred the bitcoins remains a mystery.

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