Altcoin News: CEO of QuadrigaCX Financed Unprofitable Margin Positions with Customer Funds

June 20, 2019, by Marko Vidrih on ALTCOIN MAGAZINE

The founder of the closed Canadian cryptocurrency QuadrigaCX transferred clients’ assets to third-party trading platforms and used them as collateral for margin positions.

Such information is given in the new report of the audit firm Ernst & Young, appointed by the court to further monitor the activity around the site, which is mired in problems. The analysis of the report was published by lawyer Evan Thomas.

In it, Ernst & Young describes their main doubts about the stock exchange’s operations. According to them, QuadrigaCX “had significant flaws in financial reporting and operational control.”

The exchange was not only managed by one person — now the late Gerald Cotten — but did not use basic measures for the distribution of duties and powers, as well as the separation of its own assets from user assets, the auditor writes.

“Significant amounts of cryptocurrency were transferred from Quadriga to competing exchanges into personal wallets controlled by Cotten. Apparently, users’ cryptocurrency was used to trade on these exchanges, and in certain cases, and to provide margin positions opened by Cotten,” adds Ernst & Young.

In addition, Cotten could create fake accounts with confirmed identification on his exchange and fictitiously replenish them “with hundreds of millions of dollars in Fiat”, in order to then use these funds to buy cryptocurrency from customers. According to the auditor, these practices led to an

“overstatement of information about profits, the conclusion of artificial transactions with users and, ultimately, to the outflow of cryptocurrencies transferred to the exchange by users.”

At the same time, Cotten did not have much success in trading on third-party exchanges and often lost clients’ money, which was one of the main reasons for the insolvency of QuadrigaCX, the report says.

It was found that on competing exchanges with QuadrigaCX from 2016 to 2019 illegally derived various cryptocurrencies. In particular, the report refers to the transaction 21.501 BTC, sent by Cotten to an unknown exchange. The entire amount, with the exception of 8 BTC, was eliminated by the CEO of QuadrigaCX for 80 million Canadian dollars (about 60 million US dollars) within three years. What happened with these funds further, it is not known — the unnamed exchange refuses to cooperate with the auditor.

QuadrigaCX debt to clients in Fiat and cryptocurrency is 214.6 million Canadian dollars. To date, managed to return to 31.5 million in Fiat and 1 million in cryptocurrency.

Author: Marko Vidrih