Dormant Wallets Linked to Defunct Canadian Crypto Exchange QuadrigaCX Make Surprise Transactions

The fall of Canadian crypto exchange QuadrigaCX and its founder Gerald Cotten is the story behind the well-known Netflix true crime documentary “Trust No One: The Hunt for the Crypto King.”

At its prime, QuadrigaCX was the largest cryptocurrency trading platform in Canada. For years, affected users of the defunct exchange have tried to uncover the truth about the alleged death of Gerald Cotten, who had sole access to all of the exchange’s wallets and funds. At the time of Cotten’s demise, there were about CAD 250 million ($190 million) of users’ funds stuck in QuadrigaCX’s CEO-controlled wallet. Gerald Cotten was said to have been suffering from Crohn’s disease and reportedly died on December 9, 2018, from complications of the disease while on honeymoon with his new bride Jennifer Robertson in India. Jennifer Robertson released a statement a month after Gerald Cotten’s death. There have been theories about Cotten’s death, one of which is that Cotten faked his death and could still be at large.

For months leading up to Cotten's death, customers of QuadrigaCX complained about the inability to withdraw funds from the exchange. Even after Cotten's passing on December 9, 2018, QuadrigaCX kept on accepting users’ deposits. It took nearly two months after Cotten’s demise for his wife to reveal that most of the exchange’s funds were inaccessible. According to Robertson, Cotten’s wife, only a small amount of coins were held in QuadrigaCX’s hot wallet, the rest were stored in cold storage controlled and accessible only by the late founder.

Surprise Transfers

QuadrigaCX’s bankruptcy trustee Ernst & Young (EY), a big four accounting firm, told a Canadian court in 2019 that on February 6, 2019, around 104 BTC were mistakenly transferred to QuadrigaCX’s inaccessible cold wallets. The said cold storage wallets have been dormant ever since. In a new development on December 17, 2022, transactions were initiated from the wallets. A total of 104.34 BTC worth around CAD 2.4 million ($1.7 million) were moved out of the wallets.

The five suddenly active Bitcoin addresses are:

• 1HyYMMCdCcHnfjwMW2jE4cv9qVkVDFUzVa
• 1JPtxSGoekZfLQeYAWkbhBhkr2VEDADHZB
• 1MhgmGaHwLAvvKVyFvy6zy9pRQFXaxwE9M
• 1ECUQLuioJbFZAQchcZq9pggd4EwcpuANe
• 1J9Fqc3TicNoy1Y7tgmhQznWrP5AVLXj9R

According to reports, EY has confirmed that it had no hands in the recent transactions.  With Gerald Cotten purported to be the only one with the keys to access these cold wallets, which remain in the possession of EY, it raises multiple questions – who else has access? and why are they accessing the wallets now?

Twitter user ZachXBT, who refers to himself as the on-chain sleuth, revealed that approximately 69 BTC from two of the wallets were sent to Wasabi, a crypto-mixing service.

Crypto mixers or tumblers obfuscate the origin and destination of crypto transactions. A popular crypto mixer Tornado Cash was recently blacklisted and banned by the US Department of Treasury over concerns about its effective use in money laundering.

QuadrigaCX and FTX Similitude

Most imploded centralized exchanges (CEX) have one thing in common—-mismanagement of users’ funds. As seen in the collapse of FTX and new revelations that have been brought to light, Sam Bankman-Fried (SBF) commingled users’ funds and gave Alameda Research, his crypto hedge fund, access to customers’ money. There have also been accusations of SBF and his parents’ property-buying splurge.

Like SBF, Gerald Cotten was said to have mismanaged funds by funding his lavish lifestyle with QuadrigaCX’s funds. Cotten was also reported to have margin traded users’ funds, resulting in losses of millions of dollars. When EY took over as QuadrigaCX’s trustee following its insolvency, it made these alarming discoveries. The Ontario Securities Commission (OSC) also found extensive evidence of theft and fraud by Gerald Cotten.

Similarly, John J, Ray III’s takeover of FTX, following the implosion, has led to interesting discoveries. At the December 13 House Committee hearing on FTX, John Ray revealed that there was no record-keeping whatsoever at FTX. The billion-dollar firm used QuickBooks for its accounting, and staff discussed invoicing and expenses over Slack—a chatroom app.

The QuadrigaCX case has lingered for almost four years. While Gerald Cotten is reportedly deceased, SBF is here to face the law. Currently held at Fox Hill prison in the Bahamas, SBF is expected to be extradited to the US to face criminal charges.