Cryptocurrency exchange gets court orders amid hunt for elusive assets

Cryptocurrency exchange gets court orders amid hunt for elusive assets
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HALIFAX — Canada’s largest cryptocurrency exchange was granted protection from its creditors Tuesday as it deals with the fallout from its founder’s death and the virtual company’s inability to gain access to $180 million in digital assets believed to be locked in his laptop.

Gerald Cotten, CEO and sole director of the trading platform QuadrigaCX, was travelling in India on Dec. 9 when he died suddenly from complications linked to Crohn’s disease, court documents say.

He was 30 years old.

His wife, Jennifer Robertson, has filed an affidavit with Nova Scotia Supreme Court saying Cotten was the only person with access to the laptop. She says she has searched their home in Fall River, N.S., where he conducted most of his business, and was unable to find any passwords or business records.

QuadrigaCX owes about 115,000 of its users $70 million in cash and $180 million in Bitcoins and other cryptocurrencies — based on market prices in December.

On Tuesday, Justice Michael Wood also granted QuadrigaCX a 30-day stay of proceedings, which prevents any lawsuits from being filed against the company.

QuadrigaCX lawyer Maurice Chiasson said the orders were necessary to bring stability to a chaotic case punctuated by “threats, veiled and otherwise” of legal action.

“This is an attempt to call a time-out,” he told the court, adding that the decision by QuadrigaCX’s newly appointed directors to shut down the site on Jan. 28 caused a “fair amount of panic.”

In his submission to the court, Chiasson said dealing with the unregulated and secretive world of cryptocurrency trading has proven difficult for his team of lawyers.

At one point, he described the challenge of tracking down third-party payment companies that may have digital assets belonging to QuadrigaCX.

“We’re still struggling to find out who they are,” he said.

“We still think … there is up to $180 million in cryptocurrency floating around … There’s a lot of moving parts to this.”

The company could have access to about $30 million in bank drafts, but regular financial institutions have made it clear they are nervous about handling those funds, Chiasson told the court.

On the weekend, Chiasson said his firm learned that a so-called black bank may be holding $11 million in cryptocurrency owed to QuadrigaCX’s creditors.

Chiasson also suggested that reaching the 115,000 creditors affected by QuadrigaCX’s insolvency could prove to be another challenge because those trading in cryptocurrencies get their information from anonymous online chat rooms.

“They don’t immediately know what is real and what is not,” he said.

As for Cotten’s computer, he said significant resources have been employed to gain access to the machine’s encrypted files.

“There’s been some limited success,” he said, adding that the computer has been examined by a retired RCMP officer with expertise in encryption technology.

Court documents show that QuadrigaCX had been facing liquidity issues over the past year but a major issue arose in January 2018 when CIBC froze roughly $25.7 million of its funds held in the account of a third-party payment processor.

That money has been turned over to the processor, Costodian, but they haven’t deposited the bank drafts, court documents say.

QuadrigaCX and its affiliated companies are registered in British Columbia, but it has no offices, no bank accounts and no employees, aside from a handful of contractors.

Cryptocurrencies, which are not regulated or subject to industry oversight, are typically stored digitally on a computer server connected to the internet or on a physical devise, such as a USB flash drive.

Michael MacDonald, The Canadian Press

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