Canada’s once-largest cryptocurrency exchange saw its revival prospects go from bad to worse after their court-appointed independent auditor, Ernst & Young, stated in their April 1 report that the exchange’s only option now was bankruptcy.
QuadrigaCX has been riddled in a slew of controversies following the death of CEO Gerald Cotten and the loss CAD $190 million [USD $143 million] locked in cold wallets. After wallet-hunting for over two months, reports suggested that the amount in question simply did not exist. However, there could be some respite for those affected.
E&Y stated that the exchange will seek to benefit from going down the insolvency path. If the restructuring shifts to the Bankruptcy and Insolvency Act [BIA], which indicates a straight path to bankruptcy, its assets can be sold off, leading to the exchange salvaging a proportion of their funds.
“Transitioning from the CCAA to the BIA will streamline the administration of the proceedings, reduce the level of professional involvement and provide enhanced investigative powers for the Trustee.”
The report further added that Peter Wedlake, the court-appointed chief restructuring officer, and Miller Thomson LLP and Cox & Palmer, the Representative Counsel, were both in favor of this proposition. Additionally, bankruptcy will be cost-effective to the Canadian exchange as court proceedings will decrease and professional legal costs in appointing new counsel for the exchange will be slashed.
Third Party Payment Processors
Payment processors affiliated with the exchange have also been looked into by the monitor, and on questioning reveal that some funds could find its way back to QuadrigaCX. E&Y stated that the Toronto-based POSConnect owed close to $300,000 to the Canadian exchange. However, under the terms of their agreement, the same would not be disseminated until April 28, 2019.
VoPay, another payment processor, holds around $217,000 of QuadrigaCX’s funds, but the same will not be sent back as the former had received several complaints from the exchange’s customers regarding “lack of communication.” Additionally, VoPay stated that the customers were also threatening to file criminal complaints and take legal action against the processor if the funds were not returned.
Alto Bureau de Change, a Montreal-based financial service company, has also been intimated by the monitor to return “any property” belonging to QuadrigaCX. The report stated that Alto denied any business between the two. E&Y, in their report, stated that the exchange advanced $190,000 to Alto, $160,000 of them in Bitcoin [BTC] and $30,000 in fiat. After the return of an initial amount, Alto holds between $20,000 to $37,000 of QuadrigaCX’s funds.
WB21, now Black Banx Inc, held a whopping CAD $8.9 million and $2.3 million on behalf of the exchange. In February, E&Y received a letter from WB21 stating that the exchange opened an account and entered into a contract with their Singapore branch. The letter added that WB21 Singapore had closed the exchange’s CAD and USD accounts on December 31, 2018 and that they were “entitled to freeze accounts and withhold funds if there was reasonable doubt that the end user had engaged in fraudulent or suspicious activity.”
Despite these claims by WB21, the report added,
“The Monitor continues to believe that WB21 may hold a significant amount of funds deposited by Affected Users.”
E&Y also mentioned that WB21 has been “uncooperative” and that it has “not provided even basic information” to the monitor regarding the agreement between the Canadian exchange and their Singapore branch.
Robertson Nova Counsulting Inc. [RNCI], whose sole director is Gerald Cotten’s widow Jennifer Robertson, was also mentioned as a third-party payment processor for the exchange, which the monitor was unaware of prior to the filing date.
Personal and Corporate
An Asset Preservation order will also be filed by the auditing giant, as the report spells out that Cotten and Robertson did not maintain their “corporate and personal boundaries.” QuadrigaCX’s funds were used to acquire assets outside the entity of the exchange, added the report.
Following discussions with Robertson’s counsel, the Asset Preservation Order was drawn up, which will involve,
“All assets held by the Cotten Estate, Ms. Roberston, the Seaglass Trust, Robertson Nova Consulting Inc., and Robertson Nova Property Management Inc. whether or not such assets are in the names of the respective parties and whether they are solely or jointly or beneficially owned.”
This order will prevent the sale of any assets with the above entities. Robertson and her counsel have agreed to prepare a list of relevant assets which will be communicated to the monitor for review. E&Y added that the order is a “positive development” for the exchange’s stakeholders as it will allow them to investigate QuadrigaCX’s “business and affairs” without any interference.
Lastly, the auditing giant stated that the QuadrigaCX saga might be veering to a close next week as a final report detailing the entire investigation will be presented to the court soon. The report concluded,
“The Court fapprove (approve) the transition of the CCAA administration into bankruptcy proceedings under the BIA and grant the Transition Order, the Asset Preservation Order and the Third Party Payment Processor Order, each in the form sought by the Monitor.”
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