An investigation into the now-defunct Canadian digital currency exchange QuadrigaCX has determined that its downfall “resulted from fraud committed by Quadriga’s co-founder and CEO Gerald Cotton.” The investigation conducted by the Ontario Securities Commission (OSC) discovered that it was fraud, and not the death of Quadriga’s CEO, which led to the loss of $169 million in customer funds. Misappropriation of customer funds The OSC said the late Gerald Cotten misappropriated QuadrigaCX users’ funds between 2016—when he became the sole individual in control of customer funds—and his death in December 2018. It was initially believed that Cotton kept the funds in cold storage that only he owned the private keys for. Investigation, however, revealed that the cold storage and private key rumor was far from the truth. “It has been widely speculated that the bulk of investor losses resulted from crypto assets becoming lost or inaccessible as a result of Cotten's death. In our assessment, this was not the case. The evidence demonstrates that most of the $169 million asset shortfall resulted from Cotten's fraudulent conduct, which took several forms,” says the report. “The bulk of the asset shortfall—approximately $115 million—arose from Cotten's fraudulent trading on the Quadriga platform.” The report went on to say that Cotten had several accounts on the platform and that he frequently traded against Quadriga users with other users’ funds. When the price of digital currency would fluctuate, Cotton’s supposed wealth would fluctuate as well, which eventually created a disparity between the assets and wealth Quadriga users owned, and the assets/amount of wealth the exchange actually had on hand. To bridge this gap, Cotten used other client deposits to fulfill earlier client withdrawals. “In its final months, Quadriga had almost no assets left and was operating like a revolving door—new client deposits were immediately re-routed to fund other clients’ withdrawals,” the report stated. Outside of trading against his own users, Cotton was also revealed to have lost $28 million worth of client funds from trading on three external digital currency exchanges and used another $3 million worth of client money to fund his lifestyle. Where is the lost money? The accounting firm Ernst & Young (EY) was appointed as trustee and monitor in the QuadrigaCX bankruptcy and insolvency proceedings. EY was able to identify, recover, and distribute $46 million of the lost-assets across the 17,000 QuadrigaCX users that filed claims. But the other $123 million appeared to have been squandered away by Cotten during his time at QuadrigaCX, according to the Ontario regulator.