Crypto Exchange Quadriga Was a Fraud and Founder Was Running Ponzi Scheme, Regulator Says (www.cbc.ca) 58
The Quadriga cryptocurrency exchange that saw millions of dollars disappear just as its founder died was a "fraud" and Ponzi scheme, according to the Ontario Securities Commission. CBC.ca reports: The regulator said Thursday that Vancouver-based Quadriga's late founder Gerald Cotten committed fraud by opening accounts under aliases and crediting himself with fictitious currency and crypto asset balances, which he traded with unsuspecting clients. Cotten, the OSC said in a new report, ran into a shortfall in assets available to satisfy client withdrawals when the price of the crypto assets changed. He started running a Ponzi scheme that covered the shortfall with other clients' deposits, the agency determined.
"What happened at Quadriga was an old-fashioned fraud wrapped in modern technology," the OSC said. "Quadriga did not consider its business to involve securities trading and it did not register with any securities regulator. This lack of registration facilitated Cotten's ability to commit a large-scale fraud without detection. So did the absence of internal oversight over Cotten." On Thursday, the OSC attributed about $115 million of the $169 million clients lost to Cotten's "fraudulent" trading. Another $28 million was lost when Cotten used client assets on three external crypto asset trading platforms without authorization or disclosure. The OSC said he also misappropriated millions in client assets to fund his "lavish" lifestyle and because he was in sole control of the company ever since 2016, he "ran the business as he saw fit, with no proper system of internal oversight or controls or proper books and records." "Ernst & Young, Quadriga's bankruptcy trustee, was only able to recover $46 million in assets to pay out to clients," the report adds.
"What happened at Quadriga was an old-fashioned fraud wrapped in modern technology," the OSC said. "Quadriga did not consider its business to involve securities trading and it did not register with any securities regulator. This lack of registration facilitated Cotten's ability to commit a large-scale fraud without detection. So did the absence of internal oversight over Cotten." On Thursday, the OSC attributed about $115 million of the $169 million clients lost to Cotten's "fraudulent" trading. Another $28 million was lost when Cotten used client assets on three external crypto asset trading platforms without authorization or disclosure. The OSC said he also misappropriated millions in client assets to fund his "lavish" lifestyle and because he was in sole control of the company ever since 2016, he "ran the business as he saw fit, with no proper system of internal oversight or controls or proper books and records." "Ernst & Young, Quadriga's bankruptcy trustee, was only able to recover $46 million in assets to pay out to clients," the report adds.
Suspicious Death (Score:4, Insightful)
Could someone please check that there's actually a body in the grave and do a DNA match on it? It wouldn't surprise me if he was actually in South America or Asia somewhere, and waiting for his wife to join him when the heat dies down.
Re:Suspicious Death (Score:5, Insightful)
waiting for his wife to join him when the heat dies down.
He has more than enough to afford a new wife.
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You don't *buy* wives. You can only lease them. Think I'm kidding? Check the fine print.
If buying: Negotiate the terms with a video-recorded prenup interview where each term is explained and elicited rephrasing for acknowledgement. Then it's your fine-print. (I'm unsure what to do about her fine-print because she'll never volunteer the entire document, so any deal you make would be like doing a deal with the Devil.)
Airplanes, boats, RVs, homes, and (you know what) are most oft cheaper to rent than to own.
ProTip, kids: Don't get married unless you've been together for decades, have kids, a
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waiting for his wife to join him when the heat dies down.
He has more than enough to afford a new wife.
Or a whole harem.
How much does he "have" left? (Score:2)
$169 million is quite a sum to spend in a few years even if you are running a lavish lifestyle.
So either a lot of this is possibly just currency fluctuation losses. That is no one actually had that much real US dollars just funny money with a funny conversion rate. One could never actually achieve such a conversion rate since the moment you started dumping it the conversion rate would contract.
Or else he took it with him. In which case it is somewhere.
Or finally, unless he spent it all on service and no
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Seconded.
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Well, the death certificate was probably bought for $500 or so. Why do you assume there even is a body or a grave?
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If he's already paying a coroner for a death certificate it shouldn't cost too much extra to substitute a homeless wino in the box they send to the crematorium.
Shades of Mt Gox (Score:3)
This is the flaw in cryptocurrency that keeps folks, otherwise interested in crypto-currency investment, away from the sector as a viable alternative to holding cash, stock, or bonds. Despite the optimistic hope that an unregulated monetary instrument could thrive in the modern world of poor governmental judgement, base human greed prevents it from flourishing.
It's sadly a take on the human condition. One, or a few bad actors, fuck it up for everyone.
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You're right of course, in that there will always be a given number of bad actors looking to game the system, any system, but no oversight vs some oversight is the difference between voting online and mail in ballots.
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Re:Not a flaw of cryptocurrency. (Score:5, Funny)
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Still not spoken by everyone. Spanish was the official language of Peru for 400 years and by the 1970s (when Quechua and Aymara were added as official languages) less than 70% of the population could speak it at all much less be fluent.
:Not a flaw of cryptocurrency, the purpose of cryp (Score:5, Insightful)
The PURPOSE of cryptocurrency is to avoid the laws and regulations.
The laws and regulations which are designed to protect people from getting ripped off, to the extent possible. It's DESIGNED to avoid the use of government-regulated banks which meet the requirements of having cash available to pay depositors, the managers can't be felons, etc amd replace it with "anybody who feels like it can call themselves a bank" (or exchange).
It's not a flaw in the plan, it is the plan.
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"anybody who feels like it can call themselves a bank" (or exchange).
You don't need to use a bank or an exchange to use cryptocurrency.
All the problems you describe are problems with trusting random strangers. The whole point of cryptocurrency is to eliminate the need to trust anyone.
Re::Not a flaw of cryptocurrency, the purpose of c (Score:5, Insightful)
> The whole point of cryptocurrency is to eliminate the need to trust anyone.
Then it failed in its purpose, didn't it, since every month we hear about millions more stolen because untrustworthy people were trusted.
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Then it failed in its purpose, didn't it
No. Cryptocurrency didn't fail.
A lot of stupid people failed.
since every month we hear about millions more stolen because untrustworthy people were trusted.
Sure. Gullible people get ripped off all the time. But what does that have to do with cryptocurrency?
Re::Not a flaw of cryptocurrency, the purpose of c (Score:4, Informative)
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With crypto-currency, there isn't a safe alternative.
Actually, there is. You can encrypt your wallet.
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For your purposes, the exchange may not be important.
But if cryptocurrencies are to achieve sufficient stability to be considered practical for commercial contracts, there will have to be many trustworthy exchanges in multiple countries.
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I refuse to give them my name, email, or let them hold onto my money.
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And governments are responsible for half of this plan's success by stupidly falling for it in the face of centuries of better knowledge that should cause cryptocurrency to raise every red flag and alarm bell, as I pointed out here: https://news.slashdot.org/comm... [slashdot.org]
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This is not related to any flaws of cryptocurrency. People gave their currency to someon unworthy of trust. That is a flaw of absolutely everything.
It is the flaw of all *existing* cryptocurrency that they need exchanges to process transactions effectively, i.e. all "cryptocurrencies" fail at the most basic function of a currency -- processing payments!
If people can quickly and cheaply pay each other with cryptocurrency, they won't need any exchange. Wake me up when such cryptocurrency exists.
E.g. do you see exchanges for trading balances in Paypal or WeChat wallet?
Comment removed (Score:4, Informative)
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Sure it is. Two flaws in fact: 1) cryptocurrency is unregulated and 2) almost all current cryptocurrencies are based on a proof-of-work system that basically requires exchanges or other off-chain solutions to ease friction enough to have a hope of making them useful as actual currencies.
(1) is basically the only attractive feature of cryptocurrency.
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Governments have a flaw related to cryptocurrency, where if a business deals with it, governments forget everything about the history of financial regulation and give said business every free pass in the book, and then act surprised when the business turns out to have been a hilariously massive fraud.
They didn't do this with e-gold and similar non-cryptocurrency scams/disasters-in-waiting, but cryptocurrency just turns their brains off like flashing boobs at a teenage boy.
Re: Shades of Mt Gox (Score:2)
This isn't a flaw in crypto-currency. Or, perhaps another way to say it is that fiat paper currency has the same flaw.
The equivalent behavior in fiat is for you to put cash in an envelope and mail it to a guy named Tony, whose address you got off the Internet, and who promised you he would keep your money safe. That would be dumb. And it's still dumb with crypto-currency.
Reasonable people who don't like to be defrauded send their cash envelopes only to those people they have vetted. This is what the SEC (or
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> The equivalent behavior in fiat is for you to put cash in an envelope and mail it to a guy named Tony, whose address you got off the Internet, and who promised you he would keep your money safe. That would be dumb.
Right smart people deposit their US dollars in a licensed, regulated, and insured bank. Where the government requires that they have enough cash on hand to pay depositors, management has a background check, etc. If something bad did happen, depositors are protected by the FDIC, who will giv
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If bitcoin were truly an anonymous way to conduct financial transactions, able as you say to avoid the laws and regulations, it would have more intrinsic value to many investors, speculators, and Silk Road shoppers.
Don't get me wrong, we all should've invested when /. first started covering crypto and it traded at under US$100. Cudos if you did.
Nonetheless, at close to $10K it isn't a speculative gamble at this point. Ransomware sourced in nations outside the purview of interested law enforcement keep it r
Re: Shades of Mt Gox (Score:2)
The purpose is to avoid the need for institutions. You can be your own bank. That's how many long-term holders treat it.
But if you ARE going hand your money over to a third party, you definitely want it to be someone who is part of the traditional, legal, liable, vetted, domestic set of institutions available to you.
So, yeah, it's likely that many of the customers for this exchange were using it for criminal activity. But that's selection bias and doesn't represent how most crypto-currency is used (that is,
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May I suggest you look up Alger Hiss? And various imprisonments for "Contempt of Congress"?
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Not really. Actual paper money can easily be handed over without an intermediary (if you're in person anyway) with no service fees. OTOH, an actual bitcoin transaction takes 10 minutes. That's why you just about have to mutually trust a 3rd party that can do the transaction on an off blockchain ledger quickly.
Since there are no rules and regulations, it's hard to tell if that 3rd party is trustworthy or just an elaborate website running on an old PC in Tony's garage.
Remember when Bitcoin was a fast and hass
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No one cares.
Hey Bob, I just found $100 million in bitcoin. (Score:1)
The bankruptcy firm turned over $80 million to investigators.
Investigators received $46 million in assets.
Disbursements to creditors totaled $15 million.
Cryptocurrency is NOT an investment (Score:1)
This is no different than, as other posts have said, Mt. Gox, or others.
Cryptocurrency is NOT an investment. It's a gamble. If you think it's better than dice or cards, good for you, but you OWN NOTHING, have a SHARE OF NOTHING. It's not "securities" so, no, they didn't need to "register" as a securities trader because NOTHING is secured.
I don't get how /. readers keep repeating this concept that buying these things is either "investing" or "putting money into securities" or any such. It's just gambling
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You can read all the corporate financial reports you want until you go blind, but at the minimum they're written in a deceptive fashion and often in an outright fraudulent manner. JP Morgan/Chase, IBM, Microsoft, Hyundai, have all been dinged for lying in their financial statements. Chrysler management was sued for outright fraud by Mercedes/Daimler for faking balance sheets prior to the purchase.
It's still gambling, you're taking a chance on the financial statements that you're hopefully competent to ana
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The relevant model is the "Greater Fool Theory": You buy something that has no intrinsic value hoping that a "greater fool" will come along that is willing to pay you more for it than you paid.
Also, do not gamble with money you cannot afford to lose.
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I would disagree about real estate, even if the market crashes entirely you still have a piece of property. As my dad used to say, "They're not making any more land except in Hawaii and Holland."
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I so much agree with your post.
Think about it: cryptocurrency is the perfect scam directed to paranoid people.
Paranoid people who hate government oversight, financial 'institutions', but are nonetheless 'risk takers' and self-proclaimed outsiders.
Virtual "good" with imaginary valuation is fraudul (Score:1)
News at 11.
No, just because you ran a useless algorithm on your system, wasting electricity, doesn't mean you did actual work that is worth something and that you can pay me with.
Dear traders, resellers, investors, bankers, media industrials, real-world owners: If you want money, do some freakin work! Earn that money!
No, it is physically impossible to make millions that way. That's my point.
Let me be the first to say... (Score:2)
Ponzi scheme (Score:1)
As if the creation of dollars / euros / etc. by private banks through loans with usury is not a Ponzi scheme.
It seems that black lives also matter for pots and kettles.
Gerald Cotten's Death ... (Score:2)
Gerald Cotten, the founder of Quadriga, is supposed to have been in India for his honeymoon, as well as helping in an orphanage, when he "died" because of "septic shock, perforation, peritonitis, intestinal obstruction [indiatimes.com]".
India is known for death certificate scams [thechronicleherald.ca], where you can