Canadian court takes custody of crypto exchange’s disputed funds

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Several weeks ago, Vancouver-based cryptocurrency exchange QuadrigaCX claimed that the Canadian Imperial Bank of Commerce (CIBC) froze a number of accounts connected to the firm, worth C$25.7 million (US$19 million) and US$69,000.

The CIBC claimed that it was unable to determine who legally owned the funds, and asked the court to rule on whether the bank can seize the funds to determine whether they belong to Quadriga, its affected customers, or the firm’s payment processor.

On November 9, Judge Glenn Hainey of the Ontario Superior Court ruled in favor of the bank, noting that the owner of the funds is not clearly established. This means that Quadriga’s disputed funds must be turned over to the Accountant of the Superior Court “to await the outcome of a proceeding in this court, on notice to the Depositors, to determine entitlement to the Disputed Funds.”

On Quadriga’s claim that CIBC “wrongfully froze” their accounts, Hainey said, “I am not in a position on this record to make any determination as to CIBC’s possible liability for doing so. Accordingly, it would be inappropriate for me to extinguish any liability that CIBC may have for freezing the accounts in the absence of an evidentiary record that establishes that CIBC has no liability.”

As reported by Canadian newspaper Globe and Mail, Vancouver-based QuadrigaCX has not been able to access its funds since January, after CIBC froze five accounts belonging to the exchange’s payment processor, Costodian Inc., and its sole officer and director Jose Reyes.

According to the CIBC, there is no clear information as to whether the money belongs to the 388 users who deposited the funds, the custodian, or the exchange itself.

CIBC reported that these accounts received $51.8 million between December 4, 2017 and February 20, 2018, from Quadriga users. Some funds were later withdrawn, leaving about $21.6 million in the accounts.  This and more factors caused the banks to freeze the accounts to determine who owned the accounts. Upon taking the matter to court, CIBC request that the funds be held until the rightful owner was identified.

While commenting on the matter, Gerald Cotton, CEO QuadrigaCX, told Globe and Mail that the company is considering their next step. He added that they are still waiting to hear from the courts whether CIBC acted appropriately in freezing their accounts.