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Report on Business Quadriga co-founder served time in U.S. prison for role in identity-theft ring, documents reveal

This combo photo shows Omar Dhanani, left, in a photo taken April 27, 2005, and a screengrab of Michael Patryn from a YouTube interview that was streamed on March 12, 2015.

Passaic County Sheriff's Office and YouTube

The co-founder of troubled cryptocurrency exchange QuadrigaCX is a convicted felon who served time in the United States for his role in an online identity-theft ring.

Michael Patryn helped launch Quadriga’s trading platform in 2013 alongside Gerald Cotten. The company has come under intense scrutiny since Mr. Cotten, its chief executive, died at the age of 30 from complications of Crohn’s disease while on his honeymoon in India last December, leaving the exchange’s users unable to access $250-million in cash and cryptocurrency.

Mr. Patryn has denied that he lived in the United States more than a decade ago under the name Omar Dhanani, a California resident who pleaded guilty in 2005 to one count of conspiracy to transfer identification documents. At the time, Mr. Dhanani was a member of an online marketplace called Shadowcrew.com that trafficked in stolen credit card numbers and identities.

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However, The Globe and Mail has uncovered numerous documents – including two booking photos of Mr. Dhanani obtained through a public records request from the Passaic County Sheriff’s Department in New Jersey – linking the two names.

In a Feb. 8 correspondence with The Globe, Mr. Patryn denied that he and Mr. Dhanani are the same person. When The Globe presented some of its findings, he said he would need to conduct further research. “Much of this is news to me and outside of the usual social media chitchat,” he wrote.

This week, when The Globe informed him that it had obtained the booking photos, Mr. Patryn replied: "While I obviously disagree with your conclusions, I have to wait for counsel prior to responding more thoroughly, which is unlikely to happen before your deadline.”

Quadriga Fintech Solutions Corp. was granted creditor protection in Nova Scotia in February after telling the court that roughly $180-million of its cryptocurrency holdings are missing. Mr. Cotten, who was the company’s sole director at the time of his death, was the only one with access to the funds, according to an affidavit filed by his widow, Jennifer Robertson.

Mr. Patryn and his partner, Lovie Horner, remain two of Quadriga’s largest shareholders, although he hasn’t had any involvement in the company’s operations since 2016, he previously told The Globe. His LinkedIn profile provides few details about his career prior to Quadriga, saying only that he worked as an adviser to numerous digital currency providers between 1999 and 2013.

However, court documents show that as early as 2002, Mr. Dhanani was an active member of Shadowcrew.com, a site described by U.S. prosecutors as a “hub of online identity theft activity.” The website trafficked in more than 1.5 million stolen credit card and bank card numbers, according to court filings.

Explainer: How did QuadrigaCX work? A guide to complicated crypto trading

Opinion: The crypto world is a dangerous place for ordinary investors, and regulators

In depth: How did Gerald Cotten die? A Quadriga mystery, from India to Canada and back

In the fall of 2004, after a year-long investigation dubbed “Operation Firewall,” the United States Secret Service – which also investigates financial crimes – arrested more than 20 people involved in the online marketplace. Mr. Dhanani, then 20 and living in California, was among them.

Operating under the pseudonyms “Jaeden” and “Voleur,” Mr. Dhanani provided Shadowcrew members with an anonymous electronic money-laundering service in exchange for a 10-per-cent cut, according to court documents filed by the U.S. Attorney’s Office for the District of New Jersey. In addition to his online aliases, Mr. Dhanani had an alias in the real world: U.S. court records say he went by the name Omar Patryn.

Mr. Dhanani was taken into custody in October, 2004. He was released on bail the following May, after two of his family members, Nazmin and Nabatbibi Dhanani, used US$250,000 of equity in their Orange County, Calif., home to post his bail. Neither responded to a request for comment.

Mr. Dhanani was confined to 24-hour house arrest with no access to a computer while on bail. Authorities had previously seized his 2000 Mercedes-Benz and almost US$5,000 in cash and some US$2,000 in Western Union money orders in connection to the charges. He contested the seizures, saying in a letter to the court that the items were taken from his home and that most of the cash was seized from a closet in his father’s bedroom.

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He was later sentenced to 18 months in federal prison and released in May, 2007.

He also pleaded guilty to a number of charges, including second-degree burglary and grand theft, the following month in Orange County, according to court dockets. Records list his alias as Omar Patryn.

By 2009, according to court documents, he had been deported to Canada.

That year, a Vancouver-based company called MPD Advertising Inc. was incorporated, listing two directors: Michael Patryn and Nazmin Dhanani.

Omar Dhanani in a photo taken April 23, 2006, at the Passaic County Sheriff's Office.

Passaic County Sheriff's Office

Someone with the username “Patryn” returned to TalkGold.com, a forum to discuss digital currencies, day trading and investment opportunities, a few months after Mr. Dhanani’s release from prison. “My, you’ve been away a long time,” one user wrote. A month later, “Patryn” tried to drum up business. “You know what my services entail,” reads a post from October, 2007. “They are still available.”

Six months later, in April, 2008, a company called Midas Gold Exchange Inc. was registered, listing Omar Patryn as its sole director. The company’s address points to a Calgary mailbox. That same year, a website called Midas Gold Exchange launched at M-Gold.com offering digital currency exchange services.

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One of the primary currencies M-Gold.com handled was known as LR, created by a company in Costa Rica called Liberty Reserve. Incorporated in 2006, Liberty Reserve was an early and significant player in the digital currency space, promising to allow anyone to send and receive money around the world. Users were not required to validate their identities.

Liberty Reserve’s bland website long featured a stock photo of a woman working on a laptop. But beneath the surface was “a criminal business venture, one designed to help criminals conduct illegal transactions and launder the proceeds of their crimes,” according to U.S. prosecutors. Federal authorities shut it down in May, 2013, and its founder was indicted by the U.S. Attorney’s Office for the Southern District of New York. The scope of unlawful activity was “staggering,” according to the indictment. Liberty Reserve facilitated more than US$8-billion worth of transactions, which included payments related to credit-card fraud, identity theft, investment fraud, computer hacking, child pornography and narcotics trafficking.

The company’s lack of anti-money laundering controls was so blatant that one undercover U.S. agent created an account under the name “Joe Bogus” from “Completely Made Up City” and sent funds to another undercover agent with the memo “for the cocaine.”

The founder of Liberty Reserve pleaded guilty in 2016 to one count of conspiring to commit money laundering and was sentenced to 20 years in prison.

Anonymity was built into the business model. Users never sent funds to the company directly; instead, they wired money to a third-party exchanger, which would then credit the user’s Liberty Reserve account with digital currency. (The process was reversed when users wanted to cash out.) Exchangers typically charged a processing fee of 5 per cent or more. Liberty Reserve maintained a list of “pre-approved” exchangers on its website – including M-Gold.com, which it said was a legally incorporated business in Canada. M-Gold.com boasted of its connections on its website. “We have met with the Liberty Reserve administration in Costa Rica,” reads an update on an archived version of the site from December, 2008.

In addition to shutting down Liberty Reserve, U.S. authorities seized more than 30 domain names registered to exchangers in a civil forfeiture case, including M-Gold.com. The exchangers “were directly involved in Liberty Reserve’s money laundering operation,” attorneys for the Southern District of New York said in court documents. “Without them, there would not have been money for Liberty Reserve to launder.” The exchangers also provided an added layer of anonymity.

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The contact name for M-Gold.com, according to court documents, was Omar Patryn, and one of the e-mail addresses listed for him was admin@patryn.com. The Globe has corresponded with Michael Patryn through that e-mail address. Michael Patryn also used that address in 2018 when he contracted a company to burnish his image online, court records show.

The names Omar Patryn and Michael Patryn are linked in two other ways. When Michael Patryn was ticketed in 2011 in British Columbia for failing to wear a seat belt, court records listed his alias as Omar Patryn. In a B.C. civil lawsuit filed against Mr. Patryn in 2013 related to a traffic accident, the plaintiff listed Mr. Patryn’s address as the same Calgary mailbox used by Midas Gold Exchange Inc.

Just six months after Liberty Reserve was shut down, Michael Patryn and Mr. Cotten launched Quadriga.

There were a number of similarities between Liberty Reserve and the Quadriga platform. Users looking to purchase cryptocurrency through Quadriga would first send money to a third-party payment processor. Their account would then be credited with QuadrigaCX Bucks, which could be used to purchase virtual currencies such as bitcoin on the platform. When users cashed out, money would be deposited by the payment processors.

There were key differences as well. Quadriga required users to submit documents verifying their identities, and in 2013 the company was registered as a money services business with the federal anti-money laundering agency. (The registration lapsed in 2016 when Quadriga failed to renew it.)

Quadriga has never “had any association with Liberty Reserve as far as the directors know,” said Richard Niedermayer, a Halifax-based lawyer at Stewart McKelvey, on behalf of the company.

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As the exchange grew, Mr. Patryn, who had a consulting contract with Quadriga, led an effort to take it public on the Canadian Securities Exchange. In a video interview posted to YouTube, he touted Quadriga’s imminent status as the world’s first publicly traded cryptocurrency exchange.

But by 2016, the listing effort had fizzled, creating a rift between the company’s two co-founders, Mr. Patryn told The Globe. “I left the company over three years ago over a fundamental disagreement with Gerry regarding his decision to halt the listing process,” he said in an e-mail in early February. “We remained friends but our relationship was strained.”

He also told The Globe he was never a director of Quadriga, a fact Mr. Niedermayer confirmed.

Online rumours about Mr. Patryn’s past in the United States dogged him for years, and there were frequent whispers in the Canadian cryptocurrency community about his history. As The Globe recently reported, Mr. Patryn sought to suppress those rumours last year by hiring Reputation.ca, a Toronto-based company that offers services to bury negative search results and promote positive content. He was most concerned about a post on the website Complaints Board related to Omar Patryn and Midas Gold. Reputation.ca also alerted him to posts on Reddit linking him to Omar Dhanani.

Reputation.ca created 10 different websites, articles and profiles about Mr. Patryn touting him as a “go-to spokesperson on fintech” and a “popular presenter at industry conferences.” An article on the website Young Upstarts said he did a stint as an MMA fighter “notching up an impressive 7-1 record” and that he was an expert poker player, having won $2-million in various tournaments.

Mr. Patryn ended up suing Reputation.ca in Toronto small claims court in November, 2018, alleging the company failed to remove the Complaints Board post in an agreed-upon timeline. Reputation.ca denied the claim and alleged that Mr. Patryn simply stopped paying after about three months. “Our regular client-vetting process fell short when we agreed to take Mr. Patryn as a client,” said Matt Earle, president of Reputation.ca, when asked for comment in early February. “We have made changes to our intake process to ensure this does not happen again.”

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