The accounting firm investigating the unseemly demise of Canada’s QuadrigaCX cryptocurrency exchange is accusing the company’s late founder of transferring customer funds into his personal accounts, where the money was used for high-risk margin trading.
The bombshell allegation, contained in a report from Ernst and Young, draws into sharp focus several questionable business practices that preceded the shutdown in January of QuadrigaCX.
At the time, it owed creditors more than $200 million in cash and digital assets.
Ernst and Young says CEO Gerald Cotten, who died while travelling in India last December, also transferred “significant volumes” of his customers’ cryptocurrency into other exchanges, where it was used as security for margin trading.
The report confirms the Vancouver-based virtual company was “significantly flawed” when it came to financial reporting and operations, mainly because Cotten directed the entire enterprise on his own from his home in Fall River, N.S.
As a result, Ernst and Young says the typical “segregation of duties and basic internal controls” did not appear to exist, there were no accounting records and no separation between the company’s funds and customer funds.
“Funds received from and held by Quadriga on behalf of users appear to have been used by Quadriga for a number of purposes other than to fund user withdrawals,” the report says.
More importantly, the accounting firm made it clear that after several months of investigation, it has been unable to find security passwords used to gain access to QuadrigaCX’s cash and cryptocurrency inventories because the passwords were held by Cotten.
“Quadriga failed to ensure adequate safeguard procedures were in place to transfer passwords and other critical operating data to other Quadriga representatives should a critical event materialize — such as the death of key management personnel,” the report says.
The Canadian Press