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Bitcoin missing after CEO’s death | Local | News

Canada’s largest cryptocurrency exchange Quadriga is due in court Tuesday as it seeks creditor protection in the wake of the sudden death of its founder and chief executive in December and missing cryptocurrency worth roughly $190 million.

Quadriga’s founder, chief executive and sole director Gerald Cotten died suddenly at the age of 30, reportedly taking the access keys to millions of dollars belonging to the company’s clients with him. Cotten was from Nova Scotia and owned property in Fall River with his wife.

“A visionary leader who transformed the lives of those around him, Gerry died due to complications with Crohn’s disease on December 9, 2018, while travelling in India, where he was opening an orphanage to provide a home and safe refuge for children in need,” the company said in a post on its website and Facebook.

Quadriga, which launched in December 2013, allowed its users to deposit cash or cryptocurrency. Users could then sell cryptocurrency or traditional currency and then deposit it to their bank accounts. This is a useful service for those who own bitcoin because it generally cannot be used directly to buy goods and services. The exchange has now been completely shut down.

Court filings show that after his death, Quadriga employees have been unable to locate or access cryptocurrencies worth roughly $190 million. Employees tried to access cryptocurrency within Quadriga’s “cold” wallets, a system which stores cryptocurrencies offline to avoid hacking, such as on USB sticks or

electronic hardware not connected to the internet.

“Quadriga was unable to access the cold wallets and/or discovered that the cold wallets contained minimal cryptocurrency units,” it said in court filings.

Cotten’s widow Jennifer Robertson said she was not involved in the business while he was alive and the laptop which he used is encrypted.

“I do not know the password or recovery key,” she said in an affidavit. “Despite repeated and diligent searches, I have not been able to find them written down anywhere.”

The Vancouver-based exchange filed an application for creditor protection on Jan. 31 and the Quadriga owes $70 million in currency and an additional amount of cryptocurrency valued at approximately $180 million, based on market prices in December, to roughly 115,000 users, it said in its application.

Some have very large balances, with the largest affected user claim reportedly valued at about $70 million, court filings show.

Halifax-based Keegan Francis, a blockchain expert and co-founder of Atlantic Blockchain, an education, consultation and contracting firm, said if Cotten is actually the only one with access to those cold wallets, the money is indeed lost forever.

He said storing bitcoin on an exchange server like Quadriga is risky and doesn’t come with the same sort of protection as established banks.

Francis also said it’s curious that someone running the largest cryptocurrency exchange Canada would not have have recorded some sort of backup so that the funds could be accessed in an emergency.

“If I were running a multimillion dollar exchange I would leave the private key to any and all accounts in a paper backup. I’d write down a secret that would give me access to my private keys and I would give that to lawyers in a sealed envelope and I would put it in a will,” he said.

“It really would have made sense for him to give that password to someone else, but I’m not convinced that he didn’t.”

That said, Francis said there is an overall lack of proper education in the cryptocurrency world and that often people don’t know how to responsibly take care of their funds.

“There’s all kinds of instances of negligence in industry where people are handling millions of dollars in funds responsibly so I wouldn’t be surprised if that was the case in this instance,” he said.

According to a report by the Globe and Mail, Cotten seemed to be diligent in other areas of his affairs — he signed a will less than two weeks before he died, appointing his wife as the executor of his estate and outlined the distribution of his assets, which included an airplane, property in Nova Scotia and British Columbia, and two pet chihuahuas named Nitro and Gully, along with $100,000 for their care.

Court documents show that Quadriga had been facing liquidity issues over the past year but a major issue arose in January 2018 when CIBC froze roughly $25.7 million of its funds held in the account of a third-party processor.

Those issues have led to questions and scepticism surrounding the circumstances of Cotten’s death.

In her affidavit, Cotten’s window said that there have been threats made against her and there has been a “significant amount of commentary on Reddit and other web-based platforms about the state of Quadriga, Gerry’s death (including whether he is really dead) and missing coins.”

Robertson declined to comment when reached by The Canadian Press.

A statement of death signed by a funeral director at J.A. Snow Funeral Home in Halifax and dated Dec. 12 is among the court documents associated with Robertson’s affidavit.

That funeral home declined comment on the matter but The Chronicle Herald spoke with several Nova Scotia-based funeral directors. Most said that they would only sign a statement of death if they had personally handled the remains of the individual, while others said they would issue them if they had an official document certifying the death from a hospital or government body.

Daren Baxter, a partner at McInnes Cooper in Halifax who focuses on trust and estate planning law, said in his experience most courts require some other proof of death above a statement of death issued by a funeral home.

Nova Scotia Supreme Court will be asked to appoint a monitor to oversee the creditor protection proceedings on Tuesday morning.

Meanwhile, at least one person has already filed a Notice of Contest — a man from B.C. says he is a creditor of Quadriga and the Supreme Court of British Columbia ordered the company to pay him $137,379.40 plus costs in “an amount to be assessed.”

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