In its fifth report to the Supreme Court of Nova Scotia, in its capacity as court-appointed monitor and trustee in bankruptcy to Quadriga, EY has revealed more details about apparent fraudulent conduct at the collapsed cryptocurrency exchange. EY had already established that Quadriga CX has some $21 million in assets while owing creditors $160 million.

The latest report notes that a ‘lack of formal books and records and inability to access certain encrypted devices’ have limited the review. It goes on to say that:

  • Quadriga’s operating infrastructure appears to have been significantly flawed from a financial reporting and operational control perspective;
  • no accounting records have been identified and there appears to have been no segregation of assets between Quadriga funds and user funds; and
  • the company appears to have engaged in significant ‘cash’ transactions with no proper records.

The company’s founder Gerald Cotten, whose death was reported in India in December 2018, appears to have been the only person in the company holding passwords to offline wallets. EY says significant volumes of cryptocurrency were transferred off Quadriga’s platform into personal accounts controlled by Cotton and used as security for a margin trading account established by him.

Further funds were transferred to wallet holders whose identity EY has yet to be able to confirm. Cotton also appears to have created accounts under aliases to boost revenue figures for Quadriag CX by creating artificial trades. Substantial funds were apparently transferred to Cotten personally and other related parties. EY said it has been unable to locate any evidence justifying these transfers.

On 3 June 2019, the Federal Bureau of Investigation announced that it was seeking victims in its investigation into Quadriga CX, saying that the IRS, the US Attorney for DC and the US Department of Justice are cooperating with the FBI in conducting an ongoing investigation.