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The cryptocurrency exchange QuadrigaCX collapsed into bankruptcy after the death of founder Gerald Cotten, seen here in 2014, more than four years ago.Facebook/Quadriga CX

Former users of QuadrigaCX will receive 13 per cent of the funds they had stored with the cryptocurrency exchange when it collapsed into bankruptcy after the death of its founder more than four years ago.

Bankruptcy trustee Ernst & Young Inc. told creditors Friday they will soon receive a payout for their claims. More than 17,600 claims were submitted, with amounts ranging from a few hundred dollars to a few million dollars.

All together, creditors said they are owed $303-million, but will receive just $39.5-million because much of the money could not be found.

Tong Zou, a software engineer who lost his life savings – $560,000 – in the exchange collapse, said he’s frustrated that it has taken four years to get just a fraction of his money back.

“Inflation and opportunity cost has eroded some of that value now,” Mr. Zou said in a statement.

Hear it from a QuadrigaCX user: Your money on FTX is gone, gone, gone

Still, “getting something back is better than nothing,” he said, noting that some users expected to receive less than 13 per cent of their funds.

The forthcoming payout marks an end of sorts for a bizarre saga that began in December, 2018, when Gerald Cotten, founder and chief executive of Quadriga Fintech Solutions Corp., died suddenly at 30 years old owing to complications from Crohn’s disease while on his honeymoon in India.

Mr. Cotten, who lived in Nova Scotia, built Quadriga into the country’s largest cryptocurrency exchange, but after he died, EY found that Mr. Cotten was the only person with the passwords needed to access the digital wallets in which customer funds were kept.

The Ontario Securities Commission later concluded that Mr. Cotten ran a Ponzi scheme. Operating with zero oversight, he opened fake Quadriga accounts under aliases, credited himself with cryptocurrency and proceeded to make trades. When those bets went the wrong way, he used customer funds to cover his losses.

The OSC also determined Mr. Cotten misappropriated money to fund his lifestyle. He and his wife, Jennifer Robertson, travelled extensively and purchased multiple homes.

EY managed to recover approximately $46-million in assets from various sources, including third-party processors that facilitated payments on the exchange’s behalf.

Ms. Robertson handed over $12-million worth of property and other assets, including a boat and a Cessna 400 airplane. Ms. Robertson has maintained that she was unaware that her husband’s company was a fraud.

EY will distribute about 87 per cent of the funds that it has recovered. The rest will be held in reserve for future payments, although the trustee said in a separate, FAQ document that it is “unable to estimate if there will be an additional distribution.”

“It is, however, unlikely that the full amount claimed by any affected user will be recovered,” the trustee wrote.

The Canada Revenue Agency is among Quadriga’s creditors, having determined that the company did not report income or pay taxes from 2016 to 2018. The CRA submitted a claim for $11.8-million but will receive $1.5-million, according to EY.

Quadriga’s demise briefly became a global media sensation, resulting in a Netflix documentary and a memoir written by Mr. Cotten’s widow. In December, 2019, the law firm representing Quadriga’s creditors made an unsuccessful request to have Mr. Cotten’s body exhumed, given the “questionable circumstances” surrounding his death.

Michael Perklin, a cryptocurrency enthusiast who knew Mr. Cotten personally, said most of his friends and family members who used Quadriga came to terms with their financial losses years ago and moved on. The unexpected payout should therefore come as a “breath of fresh air,” even though it doesn’t come close to covering their losses, he said.

“I am thankful that this payment to creditors will help bring closure to the Quadriga ordeal that has consumed so much time from those in the Toronto crypto scene,” Mr. Perklin said in an e-mail. “I hope it serves as an ever-present reminder that bad actors will always seek new ways of grifting innocent bystanders, and it is up to us – the early adopters – to chart a safe course for the millions and billions who will follow us into everyday adoption.”

Still one mystery remains. Last December, 104 bitcoin, worth about $2.4-million at the time, were transferred from a Quadriga wallet that was thought to be inaccessible. EY said in a statement it did not make the transfer and that it would investigate.

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