Over $190 million in deposits have disappeared into the ether after the CEO of Canada’s largest cryptocurrency exchange, QuadrigaCX, took the password to his grave.
As a result, on Tuesday, the Nova Scotia Supreme Court granted an order for creditor protection, allowing QuadrigaCX to avoid bankruptcy for 30 days while it tries to figure out how to pay its debts.
“We did not enter into this decision lightly,” QuadrigaCX said in a statement.
The company said that it had spent the past weeks working “extensively to address our liquidity issues,” which includes locating the money its customers had deposited.
“Since we were unable to resolve these issues in a timely fashion, we did not want trading to continue on our platform,” the company added. As of Tuesday afternoon, its website was taken offline.
QuadrigaCX’s problems accelerated when CEO Gerald Cotten died unexpectedly at the age of 30 from Crohn’s disease while traveling in India on Dec. 9. His death was announced Jan. 14 on the company’s Facebook page by his widow, Jennifer Robertson, who also serves as the executor of his estate.
The problem is that Cotten was the only person who knew the password to access up to $190 million in customer funds. The money is now “unavailable and some of it may be lost,” according to court filings by Robertson.
“The laptop computer from which Gerry [Cotten] carried out the Companies’ business is encrypted, and I do not know the password or recovery key,” Robertson said in her filed affidavit. She even hired an expert, who was unable to break through the encryption to access the funds.
The news was first reported by Coindesk on Friday.
Cryptocurrencies are a form of digital currency that use encryption techniques to control their creation and secure transactions independent from a central bank. These encryption techniques make it very difficult to create any kind of counterfeit money or have the accounts hacked.
The Canadian company Cotten co-founded, QuadrigaCX, revolves around users depositing funds into their QuadrigaCX account and then trading various cryptocurrencies — predominately Bitcoin — with other users. Its database has around 363,000 users.
Within QuadrigaCX’s database, the currency is divided between a hot wallet (coins in the server) and a cold wallet (an offline storage area to protect the coins from hackers). The business was essentially centered around Cotten. He had no physical office and the work was done through his personal laptop. Transferring the coins between wallets was Cotten’s task alone.
QuadrigaCX’s “cold wallets” contain inaccessible assets belonging to around 115,000 customers, according to Robertson’s court filings.
Posts on the company’s Facebook page have questioned the veracity of Cotten’s death and claim that customers were told their fund transfers were underway even after Cotten died.
Now, QuadrigaCX may have to put itself up for sale in an effort to distribute funds to its clients, according to Robertson’s affidavit.
A number of web-based conspiracies have been speculated on forums such as Reddit about the locked up cryptocurrency, and Robertson claims she has received a number of threats since Cotten’s death.
QuadrigaCX has posted a letter from its board of directors telling customers that the website will be updated after Tuesday’s court hearing.
Aaron Matthews, the head of operations, is Robertson’s choice to assume the role of interim president and CEO, according to her statement on the company’s Facebook page.