June 11, 2020 / 9:18 PM / 25 days ago

Canadian cryptocurrency firm collapsed due to Ponzi scheme by late founder, regulator says

(This June 11 story corrects amount recovered by trustee in last paragraph)

FILE PHOTO: Representations of virtual currency Bitcoin are seen in this picture illustration taken taken March 13, 2020. REUTERS/Dado Ruvic/Illustration

By Nichola Saminather

TORONTO (Reuters) - Last year’s collapse of Canadian cryptocurrency trading platform Quadriga CX was due to a Ponzi scheme operated by founder Gerald Cotten, who died suddenly in December 2018, the country’s biggest securities regulator said on Thursday.

Cotten died at age 30 from complications of Crohn’s disease while volunteering at an orphanage in India, according to the Facebook page of Quadriga CX, which announced his death in January 2019.

“What happened at Quadriga was an old-fashioned fraud wrapped in modern technology,” staff at the Ontario Securities Commission (OSC) wrote in a report.

“While public release of an investigative report is rare, we believe the tens of thousands of Ontarians who entrusted Quadriga with their money and crypto assets deserve to know what happened.”

Facing losses when the price of crypto assets changed, Cotten covered the ensuing shortfall with other clients’ deposits, according to the report.

Richard Niedermayer, lawyer for Cotten’s widow, Jennifer Robertson, did not immediately respond to a request for comment.

Some 76,000 investors from Canada and around the world collectively lost at least C$169 million ($124.2 million)

from the collapse of Quadriga in 2019, the statement added.

About C$115 million of that was due to Cotten’s fraudulent trading, the regulator said.

When Cotten died, the platform owed approximately C$215 million to clients, according to the OSC. Cotten also siphoned off assets for personal use, transferring about C$24 million to himself and Robertson between May 2016 and January 2018, the report said.

About C$34 million was recovered by the bankruptcy trustee and paid to clients, it said. The trustee also recovered assets from Robertson expected to be worth about C$12 million, and Cotten returned about C$10 million to Quadriga in the months before his death, it said.

Reporting by Nichola Saminather in Toronto; Editing by Denny Thomas and Matthew Lewis

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