Four law-enforcement and regulatory agencies, including the RCMP and the Ontario Securities Commission, are investigating QuadrigaCX, according to the trustee overseeing the now-defunct cryptocurrency exchange’s bankruptcy proceedings.
Ernst & Young says it has received formal document requests relating to some of the investigations, including from the RCMP’s financial crime division in Milton, Ont., and is looking to move the case from Halifax to Toronto to make it less costly to comply with the probes.
Ontario’s securities watchdog said on Tuesday that it has also launched an investigation into the matter. Both the commission and the RCMP declined to elaborate on the nature of their investigations.
Once Canada’s largest cryptocurrency exchange, Quadriga was shuttered earlier this year after the sudden death of its 30-year-old chief executive. Gerald Cotten died of complications relating to Crohn’s disease while on his honeymoon in India, where he was also set to visit an orphanage he had helped fund. Since his death in December, an estimated 76,000 Quadriga users have been unable to access roughly $214.6-million of their funds – much of which is missing.
Ernst & Young didn’t specifically name all four of the agencies that are conducting investigations. But in addition to the RCMP and the securities watchdog, the U.S. Federal Bureau of Investigation has indicated that it is probing the matter and the Canada Revenue Agency has requested related court documents.
The FBI’s victim-services division posted a survey on its website in June seeking information from Quadriga users about their account balances and transactions they performed on the exchange. The questionnaire notes that responses are voluntary, “but would be useful in the federal investigation and to identify you as a potential victim” and that respondents may be contacted by the FBI to provide additional information.
Ernst & Young said it is unable to disclose details regarding the probes due to confidentiality requirements, but noted that it “is aware of at least four (4) independent active law enforcement or regulatory reviews in progress” and that the “inquiries or in some cases formal requests for documents” it has received are being treated as urgent.
“The RCMP has stressed the importance of dealing with the requests and any court proceedings relating thereto on an expeditious basis," the trustee said in a report published on Monday.
Mr. Cotten operated the exchange from his laptop computer and was the only one who knew where the company stored its cryptocurrency reserves and the passwords to access them, according to an affidavit filed by his widow, Jennifer Robertson.
In an earlier report, Ernst & Young said that Mr. Cotten failed to hold cryptocurrency belonging to Quadriga’s users in company wallets. Instead, he moved large sums to his personal accounts at competing exchanges, in some cases using it as security for a trading account he operated that generated substantial losses and fees.
A significant amount of funds were transferred to Mr. Cotten and his widow, Ernst & Young said. The couple frequently travelled to vacation destinations via private jets and acquired assets worth approximately $12-million, including 16 properties in Nova Scotia, a boat, an airplane and luxury vehicles.
Ernst & Young says those assets were paid for with Quadriga funds and it is now seeking to recover them.
“The Trustee has been engaged in productive discussions with counsel to Ms. Robertson regarding the recovery of these assets for the benefit of the Quadriga estate,” the most recent report notes. “The Trustee will provide an update on the results of this process at a later date.” Ms. Robertson’s lawyer, Richard Niedermayer, could not be reached for comment.
Ernst & Young said in its report that it has also been contacted by representatives of a federal agency in Nova Scotia and British Columbia, but didn’t name the agency.
A representative of the Canada Revenue Agency was on the case’s service list in July, signalling that the agency may have a potential legal interest in the case and wishes to receive a copy of any motions or court documents. But CRA spokesman Dany Morin said in an e-mail the agency could not comment on audits or investigations that it may or may not be undertaking, “in order to ensure and maintain the integrity of the work of the Canada Revenue Agency (CRA), and to respect the confidentiality provisions of the Acts it administers.”
Ernst & Young says it is looking to have the bankruptcy case – which so far has been heard in Nova Scotia, where Mr. Cotten lived – moved to Toronto to keep costs down.
The trustee said it expects that the level of involvement and co-operation required to satisfy the requests of the various law-enforcement and regulatory agencies will be “significant.” Additionally, the complexity of the requests means that multiple court hearings will be required and the majority of stakeholder groups and professionals involved in the hearings – including those from law enforcement and regulators – are based in Ontario.
“The Trustee expects that it would be more cost-effective for future motions to be heard by a court in Toronto, eliminating the need for a significant number of professionals to incur costs to travel from Toronto to Halifax," the report says.
Ontario is home to 39 per cent of Quadriga users. British Columbia has 19 per cent; Quebec has 14 per cent. Only 1 per cent of users list Nova Scotia addresses.