Skip to main content
Open this photo in gallery:

Gerald Cotten, chief executive officer of QuadrigaFacebook / Remembering Gerry Cotten

In 2014, Gerald Cotten and Michael Patryn had a discussion about how they could squeeze the most money out of their new company, a cryptocurrency exchange called QuadrigaCX.

The two co-founders talked about stealing from the company, taking it public in a “pump-and-dump” scheme or using proceeds to “look at scam opportunities,” according to chat logs recently filed in B.C. court.

“I don’t have much respect for my QCX shares,” Mr. Patryn said of his ownership stake.

“I don’t want to burn it,” Mr. Cotten said at one point. “I’m not against your scenarios, but right now they all sound like the main goal is to pump and dump and just kill the company in a few months.”

Mr. Cotten indicated he wanted to expand the company. “I want to be like bitcoin jesus, but better lol,” he wrote.

The court documents provide the first glimpse of the origins of what would become, for a time, Canada’s largest virtual currency exchange, before it collapsed into bankruptcy when Mr. Cotten died in 2018 and thousands of users were unable to access their funds.

The previously unpublished chat excerpts, which are contained in documents filed in the British Columbia Supreme Court, also reveal stark differences in how law enforcement and securities regulators investigated fraud at the company, raising questions about whether the RCMP uncovered important evidence that it could not share with the Ontario Securities Commission.

In particular, the court documents filed by the Director of Civil Forfeiture in B.C. challenge a conclusion made by the securities watchdog that Mr. Cotten was the sole controlling mind of the company at the time of his death.

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

Mr. Cotten died at 30 years old from complications related to Crohn’s disease while on his honeymoon in India. After a 10-month investigation, the OSC concluded in a report published in June, 2020, that the exchange “operated like a Ponzi scheme” and that Mr. Cotten used customer deposits to enrich himself and to make money-losing crypto trades. Bankruptcy trustee Ernst & Young Inc. could only recover $46-million of the more than $300-million owed to creditors.

The OSC determined that co-founder Mr. Patryn left QuadrigaCX in 2016 after Mr. Cotten abandoned an attempt to take the company public.

“From this point onwards, Cotten was Quadriga’s sole director and officer,” the OSC concluded.

It was after Mr. Patryn’s departure that the majority of client funds were deposited into the exchange, the watchdog contends.

But the civil forfeiture office, informed by evidence from an RCMP investigation, argues that Mr. Patryn remained involved behind the scenes. Last month, the office filed an unexplained wealth order to force Mr. Patryn to prove that he legally earned or obtained assets seized by the RCMP nearly three years ago from a downtown Vancouver safety deposit box. Court filings allege that the more than $250,000 in cash, 45 gold bars, four luxury watches and other pricey jewellery are the proceeds of unlawful activity linked to his involvement in QuadrigaCX.

In a court filing, Mr. Patryn denied the property was obtained through criminal activity and stated that the police violated his Charter rights by unlawfully sharing evidence with the civil forfeiture agency. There is no indication he has been charged with a crime, and he did not respond to questions from The Globe and Mail. Michael Gismondi and Alison Latimer, two Vancouver lawyers listed in separate filings as having represented him in the civil forfeiture case, both declined to comment this week.

The court filings say the RCMP received complaints about the company in early 2018 and eventually launched an investigation a year later. In December, 2019, the RCMP executed a search warrant at the offices of legal counsel for QuadrigaCX’s bankruptcy trustee, EY. Among the electronic devices seized was a desktop computer that contained the chat logs between Mr. Cotten and Mr. Patryn, which span 2014 and 2015.

Based on those conversations, the civil forfeiture office alleges that the two founders agreed to stage Mr. Patryn’s exit from the company while he would remain involved in the background. The court filings don’t say how long the civil forfeiture office believes that he remained active in Quadriga.

Before Mr. Patryn co-founded the company, he was sentenced to 18 months in prison in the United States for his role in an online marketplace called that trafficked in stolen credit card numbers and identities. He has legally changed his name twice since he was released from prison in 2007.

“I have to distance myself from the company before we go public,” he wrote to Mr. Cotten on July 12, 2014. He provided an update the following March, noting that he had instructed the law firm McMillan to draft his termination letter and that he would be writing himself a $30,000 severance cheque. After three months without receiving a paycheque, he would then sign a new contract with the company.

“For those [three months] I’m legally not an employee of Quadriga secretly,” he wrote.

“lol,” Mr. Cotten replied.

Although the seized records contain just 15 months of conversations, a constable with the RCMP’s white-collar unit contended in an affidavit that the two co-founders continued speaking. “I believe the chat records ended in or about August, 2015, due to a change in communication platform (to one using more advanced, encrypted technology) or a change in electronic device,” Constable Hangzhuo (Hank) Song said.

Mr. Patryn also allegedly misappropriated customer funds for personal use, according to court documents. Between April, 2014, and August, 2018, just four months before Mr. Cotten’s death, around $460,000 was deposited into Mr. Patryn’s CIBC bank account by Quadriga.

In December, 2014, Mr. Cotten and Mr. Patryn appeared to discuss repaying $15,000 of customer funds that they had used for marketing expenses, according to chat logs.

Crypto chaos: From Vancouver to Halifax, tracing the mystery of Quadriga’s missing millions

“You and I can steal it back from the company later or whatever,” Mr. Patryn wrote.

The OSC did not say whether it had access to the chat logs, knew about the payments to Mr. Patryn or collaborated with law enforcement.

OSC spokesperson JP Vecsi said the regulator compelled EY to provide “thousands of Quadriga-related communications” and obtained a “significant volume of records” from banks and payment processors, as well as testimony and documents from key witnesses such as Quadriga contractors.

That evidence indicated that Mr. Patryn ceased to be associated with Quadriga after 2016. “Our conclusions regarding Mr. Patryn’s involvement with Quadriga remain unchanged,” Mr. Vecsi said.

The RCMP declined to comment on if and how its investigation related to the OSC probe, adding that its case involving Mr. Patryn is still open.

Scott Hutchison, a Toronto-based criminal lawyer and former Crown prosecutor, said financial regulators and police forces face significant restrictions on what information they can share with each other. A landmark 2002 Supreme Court tax evasion ruling holds that an investigative agency looking to fine a person for misconduct must not “piggyback” on the evidence from another concurrent criminal case, because suspects in those probes are afforded more rights to protect themselves, he said.

“The commission, when it’s exercising its civil powers, can simply requisition documents from anybody, whereas the police doing the same thing would have to justify that in the form of a search warrant to a judge,” Mr. Hutchison said. “It’s reasonable to think that in the course of giving special powers to regulators, we shouldn’t be undermining people’s constitutional rights with respect to police investigations.”

As for Mr. Patryn, he remains immersed in the crypto world, and a wallet address that he has said belongs to him holds more than US$41-million worth of cryptocurrency. In 2022, he launched a new crypto token called Sifu Vision, which has a market capitalization of around US$100-million.

His current whereabouts is unclear. Court documents say his last known location is Thailand, though earlier this year the crypto venture was advertising a yacht party in Dubai for holders of the token.

On a Discord server for investors, Mr. Patryn has cultivated a macho mystique, discussing weightlifting and his Ferrari, along with posting videos of a pet tiger named Kano.

Investors are quick to defend him against allegations of wrongdoing at QuadrigaCX and have referred to the OSC’s report when new Discord users raise questions. The communications officer for Sifu Vision, who goes by the name Alice, has posted on Discord that Mr. Patryn was “cleared of any involvement in the misuse of funds there after thorough investigation by the OSC.”

As for his goals with Sifu Vision, Mr. Patryn has been clear about that. On the project’s webpage, under the heading “what is the purpose of the Sifu token?” an animated red panda tosses $1,000 bills into the air, over and over again.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe