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Friday, September 30, 2022

QuadrigaCX: The Biggest Cryptocurrency Scam Explained

QuadrigaCX is a story shrouded in so much mystery, conspiracy and confusion that even if you paid the greatest screenwriters of all time, they wouldn’t be able to tell it as well as it actually happened.

How did the most reputable cryptocurrency exchange in Canada become one of the biggest cryptocurrency frauds? Gerald Cotten was the founder of QuadrigaCX. Cotten was a reputable and respected guy in the eyes of the crypto community.

In 2013, he and a man named Michael Patryn founded one of the first crypto exchanges in Canada called Quadriga Fintech Solutions. Founded in Vancouver, B.C., Quadriga was an over-the-counter exchange with a few ATMs in the area before becoming an online exchange in 2014.

The company attempted to raise funds to be listed on the Canadian Securities Exchange but failed to do so, leaving Cotten to run the company alone. He contracted work from time to time but generally run the company alone from his MacBook Pro. He and his girlfriend relocated to Nova Scotia in 2017, which was around the time crypto started to boom.

To put it into perspective, in 2014, QuadrigaCX was doing $7.4M in daily trading. By 2017, they were doing 1.2 billion. When Bitcoin stock began to plummet in 2018, investors panicked and started pulling out.

Complaints about long withdrawal time started racking up. Those with large balances were waiting upwards of several weeks. This illuminated a big issue when it comes to crypto exchanges in Canada. Liquidity. Cash. Money.

In fact, Gerald Cotten explained it best in an email, in which he stated, “The situation here in Canada is such that it is very difficult to obtain a bank account for cryptocurrency exchanges.

While it is possible, there are usually restrictions, such as only using it for storing funds or only using it for business expenses and not for transmitting funds to and from clients. Quadriga used third-party payment processors, including one called Crypto Capital, which was in charge of QuadrigaCX’s funds during the last few months of their operations.

Crypto Capital was a company set up to act as a shadow bank and was alleged to have lost or potentially stolen $851 million from customers of a different crypto exchange, called Bitfinex.

Another payment processor used by Quadiga was Custodian Inc., who had bank accounts with CIBC totalling $28M. However, CIBC had frozen Custodian Inc.’s accounts at this time, which Quadriga blamed for its liquidity problems. Bitcoin is falling, and investor complaints are turning into lawsuits.

So what does Gerald do? He marries his girlfriend, honeymoons in India, where the couple sponsors an orphanage, and then he dies. In an article published by Vanity Fair (linked below), a yacht dealer who sold Gerald his $600,000 yacht describes his experience with Cotten and his then-girlfriend Jennifer Robertson during his time teaching Gerald how to sail. The dealer explains that he went by “Gerry.” He details things like how when they were sailing around Mahone Bay, and a four-acre bay island caught Gerald’s eye.

So, he bought it, cleared the land and built a house on it but never moved in. He learned that Gerald ran QuadrigaCX from the laptop that he always had with him and how he owned a plane and frequently boasted about his travels. He even learned of Gerald and Jennifer’s desire to sponsor a home for 12 children at an orphanage in India.

After graduating from York University, Cotten got involved in cryptocurrency trading. He knew he had to earn the trust of the crypto community, which he successfully did. Many of Quadriga’s customers were sophisticated cryptocurrency traders and by 2018 had begun to feel betrayed by Cotten.

Gerald and Jennifer did eventually marry, and as mentioned, the couple decided to pursue their dream of sponsoring an orphanage, so they honeymooned in India. Nine days into their honeymoon, Gerald became ill. He suffered from an autoimmune disease called Crohn’s disease, and on December 8, 2018, he arrived at a private hospital in Jaipur, where he was diagnosed with acute gastroenteritis.

The next afternoon, his condition took a turn for the worst. Blood tests demonstrated septic shock, and before the doctors could stabilize him, his heart stopped. Gerald Cotten was pronounced dead.

Jennifer returned to Canada with Gerald’s body, leaving behind a dozen teddy bears the couple had planned on giving to the orphaned children. A month passed before Jennifer posted on Quadriga’s Facebook page to inform investors of her husband’s untimely passing.

During the month between Cotten’s death and Jennifer’s post, Quadriga continued to collect funds without investors seeing any returns. Upon learning that the death certificate misspelt Gerald’s name and that the chairman and managing director of the company that ran the hospital had been convicted of financial fraud two months’s prior, many creditors grew sceptical about the validity of his death. Skepticism grew into a conspiracy when it came out that Gerald had written his will just four days before the honeymoon.

Cotten’s will detail virtually all of his possessions, yet no mention of any external hard drives used to store most of Quadriga’s funds. It must smell something like burnt rubber… Or hair burning. Or perhaps the subtle metallic odour of blood from a cut exposed to oxygen.

I can’t tell you what fraud smells like, but whatever the stench, the internet and the media caught a whiff and ran with it. Robertson was not Jennifer’s birth name. She went from her birth name, Griffith to Forgeron, and then back after the end of an earlier marriage before finally becoming Robertson in 2016.

Fake names, lavish lifestyles, a crypto exchange trading at over a $1 billion a day. The founder and CEO’s untimely demise at the hands of a disease that rarely turns deadly. And in India, a country notorious for falsifying death certificates? The stench of fraud is palpable to Quadriga’s creditors at this point, but all the evidence coming forward is circumstantial. There was a missing piece to the puzzle that was staring everyone in the face the whole time, and his name is Michael Patryn.

As mentioned, Patryn co-founded Quadriga with Cotten back in 2013. After his departure as director, he and his partner Lovie Horner were still the two largest shareholders of QuadrigaCX.

Many who had been around Cotten and Patryn speak highly of Gerald but state that Patryn made people uncomfortable and that he had seemingly appeared out of thin air at a time when the Bitcoin Co-op was just a group of enthusiasts who met at one another’s apartments.

In February of 2019, The Globe and Mail confirmed that Dhanani, who pled guilty and was convicted in 2005 for his role in an online identity theft ring is, in fact, Michael Patryn.

Talkgold was a Ponzi scheme forum that Cotten and Patryn were both active on. Patryn joined the site in 2003 to boast about his 30% monthly returns in high-yield investment programs, aka Ponzi schemes. Gerald created an account on the site three months after Patryn, when he was just 15 years old.

Both became regulars on the forum. The duo scammed each other at first until eventually becoming friends. In January 2004, Cotten launched his own Ponzi scheme online called S&S Investments, which promised a return of 103% to 150% or more within 18 to 48 hours. S&S would suspend operations three months later.

When Patryn/Dhanani was arrested in 2004, many Talkgold members debated whether Patryn was, in fact, Dhanani. Upon his release in 2007, he was deported from southern California to Canada. Dhanani had his name changed to his online pseudonyms. First Omar Patryn, then settling on Michael Patryn.

He continued to post in Talkgold and continued to set up several online Ponzi schemes… Most notably the infamous Midas Gold. Midas Gold was an independent payment processor for a digital currency operated by an American living in Costa Rica called Liberty Reserve. This digital currency was used by cartels, human traffickers, child pornographers and other Ponzis as a way to launder their money. Midas Gold acted as a middleman between Liberty Reserve and its traders. Midas Gold transferred cash into digital currency and then back again… While ensuring no centralized record of clients existed. Oh. And Midas Gold’s contact was listed as “gerald.cotten@gmail.com” Cotten continued to run several Ponzis throughout his time in university Patryn and Cotten continuously defended each other against angry investors on chat boards by posting as one another’s satisfied clients. In May 2013, the largest money-laundering scheme in American history was brought to an end when feds in 17 different countries arrested Liberty Reserve’s administrators seizing its records and bank accounts. Liberty Reserve had 5.5 million users and did 78 million in transactions…

With more than $8 billion. Midas Gold was also seized. I don’t think Patryn was too worried, though, because, at that point, Gerald Cotten was six months into a new venture called The Quadriga Fund; Another HYIP that was claiming to be investing in foreign currency exchange markets and venture capitalist projects, it used Liberty Reserve and Bitcoin.

As well as Patryn’s services to process payments. In October 2013, Cotten made a post on BlackHatWorld, a forum where members discuss unethical marketing strategies and services. He required a programmer Familiar with Bitcoin and could develop a website that served as an exchange for buying and selling Bitcoin. The design was to be simple, yet professional.

Less than three months later, the Quadriga Fund was dead, and QuadrigaCX was born. The possibilities of what happened with QuadrigaCX and what became of Gerald are endless. As of today, there is no clear answer.

In late 2019, the lawyers representing those who lost millions to Quadriga asked the RCMP to submit a request for Gerald’s body to be exhumed, but there has been no update on whether that will actually happen.

The fallout from the curious case of QuadrigaCX is still ongoing. Many are still trying to pick up the pieces, and with Bitcoin and other cryptocurrencies on the rise reaching all new highs again, new buyers need to beware. Reddit user put it: “Nacho keys, nacho coins.”

Read More: $100,000 BITCOIN Explained!

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