The former regulatory attorney of QuadrigaCX has published a blog post describing how the company moved further and further away from regulatory prudency to “lawlessness”.
Quadriga, the former top-performing Canadian crypto exchange which is now defunct, its team embroiled in a legal battle after it lost more than $150 million of its clients’ funds, has been exposed as an organisation which descended down the “path of lawlessness” in a blog post by the company’s former regulatory attorney.
Many have speculated the worst about Quadriga as numerous peculiar details have emerged throughout the case, including the discovery of empty cold storage wallets and the emergence of the criminal past of one of the firm’s cofounders. In the post, Christine Duhaime of Duhaime Law, Vancouver, explains that the firm did not start out intending to defraud its clients but that there was a definitive moment when the firm changed course, moving away from regulatory observance.
A Good Start
There is a sense in the writing that Duhaime wants to clear the air to some degree. She is at pains to explain that, in this time of speculation and conjecture, there was once a point in Quadriga’s history where the firm was acting above board and on a good path. She admits this was over fairly quickly, however.
“… I’m not embarrassed to say it, our firm was terminated after six months. We were terminated because QuadrigaCX executed a management hard fork overnight, which started the company down a path of lawlessness…”
Previous to this “management hard fork”, the firm was engaging with Duhaime’s firm in order to make sure it was up to date on regulatory alignment. There were numerous regulatory institutions and frameworks which the firm needed to abide by and Duhaime makes it clear that in her eyes, they wanted to do everything right.
“… QuadrigaCX had cold storage insurance over its customers’ digital currencies. This was 2015, and if you were in the space back then, you know what a feat it was to secure cold storage insurance for a digital currency exchange.”
Not A Single Dollar In Shareholder Dividends
From what Duhaime describes it all sounds promising – until it didn’t. She writes how it became clear that there was a belief among the staff that the exchange had been unwittingly used to carry out a pump-and-dump scheme. As a result Quadriga was able to pay its way out of many of its shareholder agreements; at the same time however many shareholders report receiving not a single dollar in dividends over the three-year period.
“There were few shareholders left by the time we exited in early 2016, and the shareholder lists publicly available do not appear to be up-to-date. Three shareholders have recently told me that they have never received notice of any annual general meetings and didn’t receive so much as a $1 dividend from QuadrigaCX in three years, despite how profitable it appears to have been.”
Removal of “Law and Order Folks”
She goes on to say that the firm’s CEO, the now-deceased Gerald Cotten who died suddenly whilst on holiday, ultimately wanted to take the company completely private. In order to do this, he decided he needed to eliminate everyone from regulatory oversight. Duhaime describes how one day Cotten fired all the “law and order folks” and became sole controller of the company, operating as though it had no investors, shareholders or regulatory agencies it had to appease. The firm went overnight from being well on the right side of regulatory alignment to being “lawless”.
“I don’t know why Mr. Cotten decided to eschew regulatory law but I never spoke with him after that day.”
Many Unknowns and Much to Sort Out
Duhaime writes that there is much about the Quadriga case she does not know, since she has not been privy to the inner workings of the company since her time there.
“I don’t know if there is $137 million parked in a few wallets; I don’t know why the bitcoin addresses that were supposed to be holding $92.3 million turned up empty; I don’t know why the wallet address holding $44.7 million of other cryptos can’t be disclosed; I don’t know why no law firm has applied for a Mareva injunction to preserve assets; I don’t know why the litigation is in Nova Scotia when British Columbia Courts have jurisdiction and the witnesses and evidence are in British Columbia”
She also admits she did not want to publish her post but did so in order to highlight the importance of regulatory oversight in crypto – many investors have lost hundreds of thousands of dollars – as well as dispel some of the rumours that surround Quadriga at this time. But at the same time, she appreciates the severity of the situation and admits it could be years before all things relating to the firm are straightened out.
Alex has been putting words on paper since he was old enough to hold a pen; when he bought his first bitcoin in January 2017, those words discovered their place within crypto as well. He holds a master’s degree in international relations from Leiden University in the Netherlands, and his special expertise lies in European cryptocurrency regulation.