ll Quadriga exchange users ever get their money back? — At present, it’s not looking likely. Quadriga’s Gerald Cotton and Michael Patryn were outwardly two geeky fintech entrepreneurs. However, the founders of Canada’s former biggest Bitcoin exchange were really two crypto and credit card fraud super sleuths.
Quadriga’s Gerald Cotton Used Bitcoin Deposits to Leverage his own Trading
The Canadian Quadriga exchange scandal is one of the starkest reminders yet, why storing cryptocurrency on exchanges is a bad idea.
At the time of writing, 76,000 former Quadriga users are still owed a total of $214.6 million (CAD). It is looking less and less likely, though, that missing millions will ever be recovered.
January reports initially flagged lost Quadriga crypto millions as locked in an encrypted hard drive. Only Gerald Cotton had the key to unlock this drive. On passing away in India, Quadriga’s Gerald Cotton, therefore, took lost Bitcoin, Litecoin, an Ethereum with him. It is now apparent, though, that the real story is a lot murkier.
Quadriga Financial Reporting and Operational Practices Deeply Flawed
It was revealed by court monitor Ernst & Young on June 19th, that Gerald Cotton used Quadriga like a personal piggy bank.
- Quadriga’s Gerald Cotton created fake accounts on Quadriga, which he funded with user deposits.
- Cotton started to trade with user deposits for personal profit and to artificially inflate Quadriga trading and revenue figures.
- Gerald Cotton regularly used user deposits to trade crypto on third-party exchanges for his own profit.
Sadly for Quadriga users, Gerald Cotton wasn’t the world’s best day trader. Like a self-styled Nick Leeson, Cotton, therefore, made heavy losses which began to impact Quadriga’s bottom line.
Quadriga Co-Founder a Known Credit Card Fraudster
Regretfully, (though some might say, very conveniently) Gerald Cotton passed away before his Quadriga wheeling and dealing came to light. However, the deeper one digs into Quadriga, the shadier the exchange looks from every angle.
As reported by Bloomberg earlier this year, Quadriga co-founder Michael Patryn has a long history of criminality. Born Omar Dhanani, Patryn changed his name to Omar Patryn in 2003. In 2008, Patryn changed his name again. This came in the wake of fraud charges, a U.S. prison sentence, and the U.S. deporting Patryn to Canada.
- Patryn had helped operate an online marketplace called shadowcrew.com, which specialized in selling stolen credit card information
- 2007 saw Patryn found guilty in California of burglary, grand larceny, and online fraud.
It, therefore, seems strange to say the least, how Patryn could just happen to co-found Quadriga with Gerald Cotton. It is also interesting how in July 2018, Patryn started removing any mention of his past criminality online. To do this, Patryn hired a private online reputation management company. It is important to note, though, that Patryn officially left Quadriga three years ago.
Where are the Missing Quadriga Millions Now?
From day one, the official Quadriga story hasn’t added up. Cold storage wallets Quadriga claim hold missing coins are empty.
We know that between 2016 and 2019, Gerald Cotton started personally trading some of what became Quadriga’s missing millions. A lot of this trading took place on Bitfinex and Poloniex. However, millions of dollars in lost Quadriga crypto is still missing. Other oddities include the fact that $460,000 in BTC was inadvertently transferred from Quadriga to an unrecoverable cold storage wallet, a day after Quadriga was granted court-ordered protection from its creditors.
How to Stay Safe on Exchanges
Quadriga was never regulated. (Despite professing otherwise.) Not being regulated is by far one of the biggest risks when using any exchange. However, it is not just unregulated exchanges which cryptocurrency investors and traders need to approach with caution.
It is possible to hack any centralized exchange. It is also possible for bad actors to take any centralized exchange down from the inside. (As seems to be the case with Quadriga.) Non-professional traders should, therefore, never leave coins they own on exchanges unless absolutely necessary.
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