On June 11, 2020 the Ontario Securities Commission (OSC) published report on a review conducted OSC Staff, of the crypto asset trading platform QuadrigaCX (Quadriga).

The collapse of Quadriga in 2019 caused massive losses for 76,000 investors from Canada and around the world, who collectively lost at least $169 million. Approximately 40 per cent of these investors were Ontarians.

The report outlines the events from Quadriga’s inception to its eventual collapse. Over a 10-month period, a multi-disciplinary team under the direction of OSC Enforcement Staff analyzed trading and blockchain data, interviewed key witnesses, and collaborated with numerous regulatory bodies in Canada and abroad.

OSC Staff analyzed records from third-party payment processors and banks to reconstruct the platform’s affairs. OSC Staff also analyzed platform data relating to more than 368,000 client accounts and over six million individual transactions, as well as thousands of Quadriga-related emails.

Staff determined that Quadriga collapsed due to a fraud committed by Cotten. Cotten opened accounts under aliases and credited himself with fictitious currency and crypto asset balances, which he traded with unsuspecting Quadriga clients. Cotten sustained real losses when the price of crypto assets changed, thereby creating a shortfall in assets available to satisfy client withdrawals. Cotten covered this shortfall with other clients’ deposits – in effect, operating a Ponzi scheme. Staff calculated that the bulk of the $169 million in client losses – approximately $115 million – arose from Cotten’s fraudulent trading. Staff also determined that Cotten misappropriated millions in client assets.

The report can be found at: https://www.osc.gov.on.ca/en/NewsEvents_nr_20200611_osc-publishes-investigative-report-quadrigacx.htm

For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.

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