Creditors of the failed cryptocurrency exchange QuadrigaCX are bracing for a fight – among themselves.

Customers who had fiat currency balances at the exchange before it went offline and sought protection from creditors in a Canadian court last week are beginning to argue they should be paid back first from recovered assets.

But they expect customers who stored crypto at QuadrigaCX to push back on such demands. And even some fiat holders say such prioritization would be unfair.

“There seems to be a conflict going on between creditors themselves,” Canadian resident and QuadrigaCX customer Xitong Zou told CoinDesk.

Tensions between different classes of creditors are a timeless theme in distressed financial situations, but the QuadrigaCX case adds a distinctly modern twist: while the $50 million of fiat in question has largely been held up at third parties, the roughly $140 million worth of crypto is, for all intents and purposes, missing.

Stepping back, QuadrigaCX announced in mid-January that founder and CEO Gerald Cotten had died the month before. Last week, the company said in court filings that Cotten was the only member of the Quadriga team to manage its private keys, meaning the exchange could not locate $137 million in crypto stored offline in cold storage.

To give itself some breathing room and fend off customer lawsuits, the exchange successfully filed for creditor protection under the Canadian Companies’ Creditors Arrangement Act (CCAA). Now the company has roughly a month to try and sort out what assets it has before reappearing in court for a progress hearing.

Customers are not taking the news well. Many have turned to social media to call for criminal investigations of the exchange to try to determine whether their crypto holdings are truly frozen or potentially stolen.

And they’ve started to stake claims about who should be first in line to get paid back, in forums such as an unofficial Telegram channel.

Zou explained that he and other customers are waiting to receive completed fiat withdrawals, meaning they received emails from the exchange saying their funds had been sent to payment processors. Their refunds should be prioritized because “from a legal standpoint you could argue that this money is not even Quadriga’s from that point, and that we could be seen as trustees rather than creditors,” he said.

On the other hand, acknowledging that the majority of creditors appear to be cryptocurrency holders, Zou added:

“Of course people who hold more crypto … will end up getting less if this happens, so I don’t see this happening.”

A question of fairness

So far, there don’t appear to be any crypto holders making a counterargument that they should be treated on an equal footing with the fiat creditors. The closest thing to a rebuttal to arguments like Zou’s has been insults and name-calling in the chats.

But Elvis Cavalic, another QuadrigaCX customer whose funds were held in fiat, not crypto, told CoinDesk he does not think his class should get prioritized.

“If there was a major divide and a legal precedent for preferential treatment towards fiat holders, I’m not going to lie I’d be more than happy to recover my losses but is that fair? No not at all,” he added in an email.

In contrast, a third customer who wished to remain anonymous, citing fears of being attacked for his views, told CoinDesk that he believed fiat holders should not have to share their recovered funds with crypto holders.

“I don’t care what value bitcoin is for someone else, my Canadian dollars [don’t] = [some] amount of bitcoin,” said this person, who showed CoinDesk a log of his transactions at QuadrigaCX. “What happens if they find the cold wallets and the value of bitcoin apparently tripled since, are my fellow crypto investors going to share their 300 [percent] profit with me although I only had fiat? What happens if they find the cold wallets and the value of bitcoin went down. I am going to pay for other people’s bad investment?”

Citing the common saying “not your keys, not your coins,” the user said he personally would not hold any cryptocurrencies on an exchange, adding:

“I have absolutely no reason to pay for other people’s stupidity.”

The customer said he is currently looking to organize a class action lawsuit specifically for fiat holders, to be filed once Quadriga’s stay of proceedings expires.

“I’m not expecting a full refund,” he said. “What I’m expecting is that I’m not sharing my CAD with crypto holders.”

But Cavalic argued the situation was “simple”: given that every customer who used the platform trusted it to some extent by storing funds in either form on Quadriga, they are essentially in the same boat because they were all caught off guard when it announced it was filing for creditor protection.

Lawsuits ahead?

So far, Zou has filed an affidavit with the Nova Scotia Supreme Court, calling for one law firm – Bennett Jones – to be appointed as representative counsel for a possible class action. Other customers have reached out to different firms, including Miller Thompson, Osler Hoskin and Harcourt and Gowlings as possible counsel.

The court has not yet designated any particular firm as representative counsel, but a hearing will be held on Feb. 14 to discuss the issue.

Christine Duhaime, a financial crimes lawyer and a partner with Duhaime Law, told CoinDesk that the firm that does get appointed as representative counsel would conduct preparatory work on building a case against Quadriga, though no lawsuit can be filed during the stay of proceedings. The firm would also be paid to find the different affected parties, alongside address information for these individuals.

She further told CoinDesk that she believes there should be two different counsels appointed – one focused on contacting customers and communicating with court-appointed monitor Ernst and Young, and one focused on the litigation itself.

As of Feb. 5, Bennett Jones had petitioned to be appointed representative counsel alongside McInnes Cooper, another firm which “has significant experience in complex CCAA matters,” according to an affidavit filed by Zou.

Still, there remains the question of what customers will actually receive.

Cavalic believes the majority of creditors are expecting the legal system to reimburse them for their losses, including their crypto holdings.

Zou was less hopeful that creditors would receive a full refund, though, noting that the exchange’s reported assets were far outweighed by the reported debt; that legal fees and other administrative costs might cut into the amount ultimately sent out to each individual; and that it will likely take years to resolve the matter.

“I anticipate them extending the stay as well,” he said.

Speaking more broadly, he said creditors have not been positive about the situation, saying:

“That’s been the general sentiment so far – lots of [anger], bitterness, and most likely seeing pennies on the dollar after waiting a while.”

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