Roughly $145 million worth of cryptocurrency funds are frozen in the cold (offline) wallet of a Canadian cryptocurrency exchange portal after the death of its owner.
QuadrigaCX, the exchange, has filed for legal protection against its creditors in accordance with Canadian law until it regains access to the funds, according to a message posted on its website.
Problems for the exchange started in December 2018, when its CEO, Gerry Cotten, died of Crohn’s disease in Jaipur, India.
Cotten was the only one who had access to the company’s cold wallet. Despite his death, the exchange continued to operate for nearly a month by using the liquidities stored in its hot (online) wallet and fiat currency bank accounts.
Cotten’s death wasn’t even noticed by most of the exchange’s users until two weeks ago when his widow, Jennifer Robertson, announced his passing on Reddit, triggering a mass withdrawal of funds that destabilized the exchange.
“For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets, and that are required to satisfy customer cryptocurrency balances on deposit, as well as sourcing a financial institution to accept the bank drafts that are to be transferred to us,” the company’s board said in a message posted this week on its website.
“Unfortunately, these efforts have not been successful.”
Some of these efforts “to locate and secure” the cold wallet funds included hiring an IT consultant to attempt to decrypt Cotten’s laptop and gain access to the cold wallet password, according to cryptocurrency news portal CCN.
This wallet is at the center of QuadrigaCX’s operation. It stores quite a considerable amount of funds, according to a court document filed this week by Cotten’s widow, obtained by CoinDesk, another cryptocurrency news site. In particular, around 0.5 percent of all Ether coins currently in circulation are now frozen in Cotten cold wallet, according to an Ethereum market analyst.
According to the same court filing, besides the $145 million worth of cryptocurrency funds frozen in Cotten’s cold wallet, the company also owes another $53.5 million in fiat currency, which it now cannot pay after using some of its reserves and after Canadian authorities froze other accounts due to irregularities –per an AMBCrypto report.
More and more users are getting angry that they can’t access their QuadrigaCX funds and for valid reasons. Some are even questioning Cotten’s passing, claiming that he actually may have faked his death and is now living off the funds he had stored on the cold wallet.
QuadrigaCX is now asking the court for a stay of proceedings that would preempt any lawsuits that may come from this whole mess. They are also asking the court to appoint international accounting firm Ernst & Young to oversee its operations until everything gets sorted out.
It is highly unlikely that the exchange would ever get access to these funds ever again.
A report from CipherTrace published this week revealed that hackers stole over $1.7 billion worth of cryptocurrency from exchanges in 2018. The QuadrigaCX case may be one of those strange events where users lose money and it’s not because of hackers or a scam.