The QuadrigaCX Exchange continues to be in the middle of an investigation after the owner of the platform, Gerald Cotten, passed away at the end of 2018 without leaving information about the private keys of the exchange. Canadian authorities, consider that the exchange was using investor’s money to cover their losses.
Was the Crypto Exchange QuadrigaCX Fraudulent?
As reported by the Ontario Securities Commission (OSC), their investigation on the exchange concluded that the platform was literally a “Ponzi scheme.” The term is used to define investment models where the interest and rewards to users are paid with the money brought by new investors rather than by genuine investments and profits.
Apparently, the exchange was using funds from new users in order to cover up losses. Back in early 2019, the exchange collapsed and around 76,000 users lost their funds due to the tragic death of Mr. Cotten. At that time, Cotten was in India and was affected by Crohn’s disease.
The main issue that affected users was related to how the platform held its private keys with the funds from investors. Cotten was the only person in charge of the private keys of the wallets of the platform where $170 million in cryptocurrencies were stored.
Apparently, Cotten was using the funds of the clients to trade in the market. When the price of cryptocurrencies fell in 2018 and the platform didn’t have funds to continue operating, clients were receiving funds from new investors if they wanted to perform a withdrawal. This is why the OSC considers that the platform was a Ponzi scheme.
Furthermore, the exchange was not registered with local authorities and it made it more difficult for regulators to control how the exchange was behaving. Moreover, the regulatory agency from Canada explains that Mr. Cotten was using funds to continue with his life rather than taking care of customers and investors in the exchange.
Exchanges have been operating a wide range of fraudulent schemes all over the world in the last years. Many of these exchanges do not implement the necessary security measures to protect users’ funds. QuadrigaCX is one of the many exchanges that lost money and left investors without their funds.
Perhaps, the most known case in the world is the Mt. GOX exchange that was hacked in 2013 and at that time ti handled around 70% of the total Bitcoin volume. Until today, users are claiming for their funds.