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Author Topic: [2019-3-10] QuadrigaCX Missing Crypto Investigation Full of Twists and Turns  (Read 184 times)
CoinClarity
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March 10, 2019, 02:36:37 PM
 #1

It seems like either they were insolvent or slowly being robbed by a security consultant. Either way, the death of the CEO was the perfect cover..

In one of the most intriguing crypto mysteries of 2019 thus far, analysts and investigative journalists recently discovered that a recently-deceased CEO’s one-man-show might not be the convenient excuse as to why $190 million in crypto assets have gone missing from Canada’s biggest cryptocurrency exchange.


Highlights of the story:

What is Known vs. What is Speculated

The hunt is on, and in the brief time since Kraken posted their reward offer, lots of new information concerning QuadrigaCX has come to light. Here are some interesting aspects of the story that are known for sure:

- Gerald Cotten changed his will 12 days before his death, naming his wife as the sole heir of his estate. Cotten’s name was mis-spelled on his official death certificate, which lists his death date as December 9th (news of his death was not made public until February).

- Over $100 million worth of ETH was withdrawn from Quadriga’s exchange wallets in December, just days before Cotten’s death, sent to addresses belonging to exchanges Bitfinex and Poloniex.

- Contrary to claims stated in an affidavit filed by Cotten’s wife, BTC wallets under the control of Quadriga were found by auditors to have been empty since April 2018, and did not contain the tens of millions of dollars in customer funds believed to have been located there.

- The FBI is now working with the Royal Canadian Mounted Police in order to track down the location of the missing funds, inviting those with information related to the matter to step forward to help their investigations.

Here are some allegations that have substantial evidence to back them:

- One of Quadriga’s biggest shareholders, Michael Patryn, is thought to have been arrested and charged with financial fraud crimes in the U.S. under another name, Omar Dhahani, in 2004. Dhanani was an active member of Shadowcrew.com, which was a site described by prosecutors as a “hub of online identity theft activity.” The website was mainly used to traffic stolen credit card and bank card numbers, per court filings associated with the case. As a result of his involvement, Dhahani was sentenced to 18 months in federal prison and released in May 2007.

- In 2008, Dhahani is thought to have started a website called Midas Gold Exchange, under the name Omar Patryn, launched using the URL M-Gold.com. The website offered digital currency exchange services, focusing heavily on an anonymity-based virtual currency called Liberty Reserve, which was later shut down by U.S. prosecutors, who dubbed it “a criminal business venture, one designed to help criminals conduct illegal transactions and launder the proceeds of their crimes.”

- Though denying being the same person as Omar Patryn to reporters, Michael Patryn, who acted as a security consultant to Quadriga in addition to being a major shareholder, was contacted by staff at The Globe and Mail through an email address associated with M-Gold.com. Canadian court documents also tie the two together by mentioning Omar Patryn as an alias of Michael Patryn, and also through a P.O. box associated with Midas Gold Exchange Inc. Six months later, Patryn co-founded QuadrigaCX with Gerald Cotten, however he quickly relinquished any executive duties in favor of becoming a shareholder.

- According to Coinbase CEO Brian Armstrong, QuadrigaCX was not likely to have been perpetrating an exit scam, noting that the market conditions to do so would have been horrible for an exchange founded back in 2013. Instead, he believes the exchange suffered a “multimillion dollar bug” in July 2017, in which millions of dollars’ worth of customer ETH went missing or became locked up in a miscoded smart contract. Quadriga was well-aware of the problem, having issued a statement about it on Reddit while simultaneously claiming that user funds were not at risk, and that only company profits had been affected.

- As a result, Armstrong believes Quadriga found itself playing “catch up,” trying to replace lost funds with new ones, of which became too impossible a task to manage as the crypto markets rapidly declined through early 2018. In the months following the steep market sell-off, the exchange became insolvent and was on the verge of bankruptcy, though this information was never disclosed to its customers.

- In order to help alleviate insolvency issues incurred during the “bug drain” outlined by Armstrong, QuadrigaCX created fake accounts on its own platform to trade against its users with a “significant volume” using “artificially created” deposits and then withdrew actual assets to accounts not associated with QuadrigaCX. This would also help explain issues with delayed fiat withdrawals stemming back to early 2018, well before Cotten’s passing.

- The country of India, and specifically the region where Cotten was pronounced deceased, is known for having a “fake death mafia,” which lends credence to the theory that he may have faked his own death. However, Kraken CEO Jesse Powell is “99% certain” that Cotten is actually deceased.[/color]

You can read the story in its entirety (and with the pictures) here:

https://coinclarity.com/quadrigacx-missing-crypto-investigation/

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March 12, 2019, 04:16:49 PM
 #2

The transparency of a public ledger should make it easier to investigate but there is still doubt on where the coins have gone. There is definitely foul play here, i think he wss dying anyway so he gave everything away first

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March 12, 2019, 09:26:51 PM
 #3

Giving out this link https://bitcointalk.org/index.php?topic=5106678.0 for older QuadrigaCX discussion.

As of today, the investigation is on the process and we have seen all the twist and turns about into this case.As a simple observer
we can already make judgement with this one.Lots of leaks and situation that arent right at all.Lots of questions been asked why they do
such thing but for some obvious reason [- scamming-].

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March 12, 2019, 10:35:11 PM
 #4

This is so stupid. And unfortunately, it is not uncommon. There is a great need for reliable and independent tools to audit these exchanges. They all seem to have used similar practice at some point. When a problem occurs, simulate for a while, hold the funds, trade on the platform using non-existent funds, and use the profit to escape or to cover the gap.
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March 13, 2019, 01:47:23 AM
 #5

This is so stupid. And unfortunately, it is not uncommon. There is a great need for reliable and independent tools to audit these exchanges. They all seem to have used similar practice at some point. When a problem occurs, simulate for a while, hold the funds, trade on the platform using non-existent funds, and use the profit to escape or to cover the gap.

Quadriga is clearly not using the same standard practice like most "reputable" exchanges. Theiy don't have multisig, or they have it according to some sources but the key is missing because the only one who knows it is the owner. So from the beginning there's no framework to prevent loss of funds due to unpredictable cause like death. On top of that, they've been having withdrawals issues months ago and it seems they're using the weird and questionable payment processor, Cryoptocapital. Why don't they use other is what keeps me wondering whether this exchange really want to succeed or not.
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March 13, 2019, 10:51:06 AM
 #6

Greed, isn't it?

Look back on all the stories that caught the public eye, and it's all the same. Bitcoin and crypto didn't change the ends, only the means. Stolen money, the easy exit scam excuse always put up. People are simply getting more creative, and hacks used to be the Deus Ex Machina saving exchanges from being labelled as thieves (I'm thinking Mt Gox here).

And now, death is the new force majeure. They forget how savvy crypto users are these days, though. And yeah, Quadriga, come on. You knew blockchain records your trail, right?

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March 13, 2019, 11:59:16 AM
 #7

If it's a bankruptcy he wouldn't necessarily have had to falsify his death. Maybe he wouldn't even have been in debt or not so much.
If this is an exit scam, he could have done it much later, or he didn't have the patience to wait for an ATH.

They just need to follow his wife to find him, the criminals always come back to the boobs  Cheesy
I already know that this story is going to be like a detective story. I hope we'll see a lot of twists and turns in it, the TV program is boring these days.


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March 13, 2019, 04:06:52 PM
 #8

And the plot really thickens, LOL. A lot of twists and turns and it's a total mystery specially the circumstances about the death of the CEO. And now more unraveling, specially Omar/Michael Patryn, who looks like have a shady past as well. They could have exited during Bitcoin's peak in 2017, but perhaps they are just too greedy and maybe Cotten is not ready to die that time and still wanted to enjoy the money.  Grin

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March 13, 2019, 09:37:26 PM
 #9

- Over $100 million worth of ETH was withdrawn from Quadriga’s exchange wallets in December, just days before Cotten’s death, sent to addresses belonging to exchanges Bitfinex and Poloniex.

Probably an obvious question, but...
What happened to that money?

If we speak about 100mil# it's damn obvious neither of those exchanges can come with excuses that they weren't aware of this massive transaction tens of thousands ETH.

Has this stash been sold, is still there, have they paid $ to some banks?

Actually..
https://www.reddit.com/r/CryptoCurrency/comments/avwzce/breaking_over_600k_ethereum_belonging_to/

Quote
Total Amount of Ethereum Sent to Kraken, Poloniex and Bitfinex
In total, Bitfinex received 239,240 Ethereum ($85,307,293 at the time of transfer) from QuadrigaCX.
In total, Kraken received 84,248 Ethereum ($16,051,305 at the time of transfer) from QuadrigaCX
In total, Poloniex received 326,220 Ethereum ($27,723,564 at the time of transfer) from QuadrigaCX.

Is there any update on this?

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March 13, 2019, 10:56:41 PM
 #10

If it's a bankruptcy he wouldn't necessarily have had to falsify his death. Maybe he wouldn't even have been in debt or not so much.
If this is an exit scam, he could have done it much later, or he didn't have the patience to wait for an ATH.

I'm leaning towards Brian Armstrong's analysis: They were hiding insolvency ever since the $15M ETH smart contract incident. They were able to continue like this during the 2017 bull market but were increasingly unable to fulfill withdrawals in 2018. This is their collapse, like Mt Gox a few years back.

I think Cotten's death may have been real, and it provided an easy out for the rest of the management who couldn't maintain the insolvent exchange for much longer anyway. Or he faked his death so he could disappear, to avoid answering for the insolvency.

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March 14, 2019, 08:36:55 AM
 #11

This story is too shady in my opinion.
I just want to state how is it possible for such a big company that only the CEO has the Private keys of the wallets? On the one hand it is a good safety measure that one holds the keys, but on the other side it is so irrational. QuadrigaCX was a big corporation with many clients. It is so weird to me that they didn't have a plan B, in case the CEO dies.
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March 14, 2019, 08:57:45 AM
Merited by stompix (1)
 #12

- Over $100 million worth of ETH was withdrawn from Quadriga’s exchange wallets in December, just days before Cotten’s death, sent to addresses belonging to exchanges Bitfinex and Poloniex.

Probably an obvious question, but...
What happened to that money?

If we speak about 100mil# it's damn obvious neither of those exchanges can come with excuses that they weren't aware of this massive transaction tens of thousands ETH.

well his death wasn't publicized at that time. quadriga didn't shut down until almost 2 months later. none of this came to light until february.

i'm guessing quadriga's management (or cotten himself if he isn't really dead) were using those exchanges to swap ETH for currencies they needed to fund customer withdrawals. the fact that the exchange was still operating insolvent for so long after his supposed death shows that quadriga's other directors (not just cotten) were in on it too.

Has this stash been sold, is still there, have they paid $ to some banks?

i think they were operating like a ponzi, using customer deposits to pay customer withdrawals. i think maybe that's one of the reasons they had millions frozen by banks for suspicious activity. i just don't see any other way they could stay in operation after these incidents:

https://www.coindesk.com/crypto-exchange-quadrigacx-awaits-ruling-on-22-million-in-frozen-funds
https://www.coindesk.com/ethereum-client-exchange-14-million

looking back, it should have been more obvious. it probably was to those that paid attention. i just never had any reason to look into a canadian exchange.

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March 14, 2019, 10:42:29 AM
 #13

Seems like that Patryn (Dhahani) guy was slowly leaking money to himself as well. Maybe its a combination of insolvency and theft... In any case I'm sure this story will have a spectacular ending.

But like the Kraken CEO said, the chance of Cotten being dead is probably 99%... After all, his body was supposedly brought back from India to Canada by his wife.. You would think he would have been ID'd by either some coroner or family member in the process.

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March 14, 2019, 12:51:45 PM
 #14

~

well his death wasn't publicized at that time. quadriga didn't shut down until almost 2 months later. none of this came to light until february.

i'm guessing quadriga's management (or cotten himself if he isn't really dead) were using those exchanges to swap ETH for currencies they needed to fund customer withdrawals. the fact that the exchange was still operating insolvent for so long after his supposed death shows that quadriga's other directors (not just cotten) were in on it too.

Probably, cause I guess that if they tried to run with those funds the fiat withdraws would be easy to track.
But even if that's not the case all those tokens or coins they've bought can be traced back so their scheme will be revealed sooner or later.

It's a bit surprising that even if admitting there is a police investigation the exchanges haven't come with some sort of statement except from Kraken. This unless I'm missing some of the latest news..

But like the Kraken CEO said, the chance of Cotten being dead is probably 99%... After all, his body was supposedly brought back from India to Canada by his wife.. You would think he would have been ID'd by either some coroner or family member in the process.

From the start, I said this fake death scenario is too complicated, damn too complicated to be true.
Even if they did steal or planned to do an exit scam this would simply overcomplicate things, add more insiders, cost more money and attract bigger charges against them.

Of course, I might be wrong and we might find out he indeed faked his death but that would only prove how stupid and useless his plan was...






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