The Ontario Securities Commission says Vancouver-based cryptocurrency exchange Quadriga collapsed because of fraud committed by its late founder Gerald Cotten.
The commission says in a report that Cotten opened accounts under aliases and credited himself with fictitious currency and crypto asset balances, which he traded with unsuspecting Quadriga clients.
Cotten ran into a shortfall in assets available to satisfy client withdrawals when the price of the crypto assets changed and started running a Ponzi scheme that covered the shortfall with other clients’ deposits.
The organization attributed about $115 million of the $169 million clients lost to Cotten’s fraudulent trading and also determined that he misappropriated millions in client assets to fund his lavish lifestyle.
The OSC said it would have liked to pursue an enforcement action against Cotten and Quadriga, but because Quadriga is bankrupt and Cotten has died, it’s “not practical.”
Quadriga sought creditor protection in 2019 after users reported roughly $190 million in missing cryptocurrency and 30-year-old Cotten died on his honeymoon in India, while holding all of Quadriga’s passwords.