QuadrigaCX: Understanding Gerald Cotten

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We may never know exactly what happened with the $100 million that has gone missing from crypto exchange QuadrigaCX’s wallets, and the next update from the Nova Scotia Supreme Court could be weeks away. Alex Posadzki of The Globe and Mail can give us some better insight into the company’s deceased CEO, Gerald Cotten, in the meantime.

Posadzki joined the Canadian Broadcast Company’s (CBC) Frontburner podcast to discuss everything about the QuadrigaCX case. As the capital markets reporter for The Globe, she’s had a solid understanding of the company from the start.

Cotten started popping up in Canadian crypto communities in 2013, and discussed starting an exchange for Canadians rather than using foreign options. He’s quoted as saying:

“If you recall back in the summer of 2013, there really weren’t many options to buy and sell Bitcoins. There was 1 exchange that was pretty much leading the pack. And other than that, you pretty much had to send a wire over to Japan.”

He started coding the site that year, and teamed up with co-founder Michael Patryn to get the site finished. They launched in 2013 and, as a result of Cotten’s warm relations with the community and near monopoly on the market, found themselves as the dominant Canadian option for cryptocurrency exchanges.

After a disagreement, Patryn claimed he left on amicable terms in 2016, and has no knowledge of how the operation was run after that point.

In early 2018, as the market started crashing from its late 2017 highs, problems started developing. Customers were having difficulty withdrawing their funds, and legal troubles started bubbling up.

Posadzki says Cotten’s activity in 2018 is very shrouded. He moved to the Canadian province of Nova Scotia and ran the company from a single laptop. People he was close to in the community stopped hearing from him. He could be best defined as a recluse at this point.

He and his wife had expensive tastes though. He had a 51-foot yacht and a private Cessna, described as “the Cadillac of Cessnas.” He seldom flew the plane though, and was chased by his mechanic for storage fees.

Despite those extravagant purchases, Posadzki says they aren’t really proof that Cotten stole customer funds. Although expensive, they aren’t worth $100 million, and could easily be bought by an early crypto entrepreneur, she says.

A common talking point on the internet has been that Cotten’s death is too suspicious to believe. After all, dying of Crohn’s disease at 30 while on honeymoon in India needs a bit of explaining to make sense.

As Posadzki relays from their investigative reporting, Cotten first came down with traveler’s diarrhea. Crohn’s disease makes it far easier to perforate the bowel, and experts suspect this is what happened next. This lead to septic shock, eventually causing his three heart attacks and death. It’s just unfortunate that the cryptocurrency community has already been victimized by exit scams, leading many to believe that’s what happened here, she says.

The more suspicious part of the QuadrigaCX case is how the company was run. For a billion-dollar-a-year company, with nearly $200 million of customer assets on the line at any one time, to be run from a single laptop by one man is ridiculous. She describes the company as having no accounting, no contingency plans, and a corporate structure of a “one man show with lots of contractors.”

We also learned a bit about the victims. Posadzki reveals that the largest creditor is owed $70 million. She’s also spoken with another customer who had his entire life savings, $400,000, all lost to the exchange’s shutdown.

The sad end of it is they may never see relief. The current hope is that some of it will be found in one of the 14 exchanges that Cotten’s wallets were found to have transactions with. Posadzki is less certain, saying, “How long have these wallets been empty. Are there other wallets that contain this money? Or has the money been missing for a while?… We definitely may never know if the money is there. We might never find the money.”