What it was
QuadrigaCX launched in December 2013 as a way for Canadians to buy bitcoin with Canadian dollars, which at the time was awkward to do. Gerald Cotten, then 25, incorporated the company in British Columbia and named himself sole director. He co-founded it with Michael Patryn, who was involved from 2013 until 2016. It charged 0.2 to 0.5 per cent per trade. By the end of 2014 client accounts held roughly 3,600 bitcoin, CAD 2 million and USD 400,000.
After 2016 Cotten ran it alone. The Ontario Securities Commission's report describes a company with hundreds of thousands of clients, a handful of remote contractors, and no internal oversight of the one person who controlled every wallet and every bank account.
What happened
On 14 January 2019 Quadriga announced that Cotten had died in India the previous month. By 5 February the platform had stopped operating and had filed for creditor protection. More than 76,000 clients were owed CAD 215 million between them, and roughly 40 per cent of them were in Ontario. Ernst & Young was appointed trustee and monitor and recovered or identified CAD 46 million.
On the record
Staff of the Ontario Securities Commission published a review of Quadriga on 14 April 2020. Its first sentence is the finding: "The downfall of crypto asset trading platform QuadrigaCX (Quadriga) resulted from a fraud committed by Quadriga's co-founder and CEO Gerald Cotten." Staff attribute roughly CAD 115 million of the CAD 169 million shortfall to Cotten trading against clients from accounts he opened under aliases and credited with balances that did not exist, and a further CAD 28 million to losses trading client assets on three external platforms without disclosure. Staff state that the platform "in effect" operated like a Ponzi scheme.
Two qualifications belong with that, and the OSC states both. The report carries a notice that its findings "are not findings of fact by an OSC hearing panel and have not been tested before the OSC tribunal or a court". And Staff say they decided not to bring an enforcement proceeding at all, because Cotten is dead and Quadriga is bankrupt.
The OSC also records that the misconduct it found "is limited to Quadriga and should not be understood as applying to the crypto asset platform industry as a whole". Listing here is not endorsement.