Imagine a cryptocurrency exchange where user and company funds are not segregated and there is practically no record keeping or accounting performed. Now imagine this platform is controlled by a centralized chain of command with a single person making all the important decisions, without whom the entire platform would collapse.

Sadly, this is the bitter reality of the now-bankrupt and defunct cryptocurrency exchange QuadrigaCX, which was used by around 115,000 customers worldwide.

After the mysterious death of its founder and CEO, Gerald Cotten, the exchange became dysfunctional. Lacking any funds to complete user withdrawals and amid a multitude of litigations, the company filed for bankruptcy.

However, this isn’t where the story ends. The company was given temporary court protection from any claims being filed by its creditors under the Companies’ Creditors Arrangement Act. During this period, a third-party watchdog was assigned to do a thorough investigation of the matter and decide whether the bankruptcy can be filed or not. In this case, this role is fulfilled by Ernst & Young.

Following its appointment, Ernst & Young discovered that the entire business was being run through Cotten’s personal encrypted laptop and there was no formal relationship with any banking institution. Instead, the company relied entirely on third-party payment processors.

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In a recently released report, Ernst & Young posit that the funds the company held on behalf of its users were being used for a variety of purposes that were not just limited to the exchange operations. Cotton is suspected of transferring 9,450 BTC, 387,738 ETH and 239,020 LTC out of Quadriga — some of which was reportedly used to engage in margin trading on other exchange platforms.

Furthermore, there are reports from independent investigators that indicate that Quadriga has been slowly liquidating small amounts of funds from the exchange’s wallet, totaling up to millions of dollars, by passing them through coin mixers.

When the CEO passed away, his widow claimed that most of the user funds were stored in several cold-wallets within an encrypted laptop. Despite this, the investigation so far has only turned up empty cold wallets that have been dormant since 2018.

Regardless, the trustee will be looking to recover and liquidate Cotten’s remaining assets, including real estate, several vehicles, and securities worth around $12 million to reimburse Quadriga’s creditors.

Though it remains unclear whether this was an elaborate exit scam in mid-action or a long-running Ponzi-scheme ultimately exposed by an untimely death, one thing remains certain — tens of millions of dollars are missing.

What do you think of the QuadrigaCX story so far? Were you one of the affected users? Let us know your thoughts in the comments below!