Inside One of the Most Notorious Crypto Scams in Global History

As the Netflix documentary examines one of the most infamous cryptocurrency scams, let’s detail the facts and what’s still up for investigation in the narrative of lost millions and sad investors.

It all began in December 2018 with Gerald Cotten, the founder of QuadrigaCX, Canada’s largest cryptocurrency exchange at the time. He and his new bride, Jennifer Robertson, visit India, where Cotten, who has Crohn’s disease, becomes ill. Unfortunately, his condition deteriorates and he dies shortly after being admitted to a hospital. A month later, QuadrigaCX confirms his death in a statement attributed to Robertson.

Customers had been complaining in the months preceding up to Cotten’s death that they couldn’t get their money out of the exchange and were waiting weeks, if not months, to receive funds. “There’s a bunch of warning bells going off in most people’s heads right now,” said one customer who spoke to CoinDesk at the time. 

As it turned out, he was correct. The exchange was offline for “maintenance” on January 28. Soon later, a court file acquired by CoinDesk showed that QuadrigaCX owed consumers $190 million, and the startling discovery at the time was that no one understood how to access the exchange’s reserves. In court, his widow testified that while she possessed Cotten’s laptop, it was encrypted, she was never given the password or recovery key, and Cotten was the only one who had access to QuadrigaCX’s cold storage system.

The story of QuadrigaCX

Gerald Cotten and Michael Patryn founded QuadrigaCX in Canada in 2013, focused on local bitcoin exchanges (BTC). They grew with a small workforce in 2014 to install a bitcoin ATM in Vancouver, but ran out of money in 2015 following an unsuccessful attempt to go public and list on the Canadian Securities Exchange.

By 2016, plans to go public had been scrapped, the legal counsel had been fired, and all of the other directors had left QuadrigraCX, leaving Cotten to manage the company on his own.

Cotten, according to sources, ran the business from his laptop, with no permanent office. Despite its rough start, the firm expanded as the price of bitcoin skyrocketed in 2017 from $1,000 to over $20,000. People wanted a piece of the action, and the firm grew to 350,000 users trading more than a billion dollars in assets. However, the price increase was not to endure. Customers tried to cash out what they could when bitcoin collapsed in 2018, and here is where the issue began.

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Who was Gerald Cotten?

To understand why so many people trusted a one-man show with their money, it is necessary to know who that man was. Gerald Cotten was an early cryptocurrency advocate who was a founding member of the Vancouver Bitcoin Co-op in 2013. On the surface, he appeared to be a “good Canadian guy” who was an expert in cryptocurrencies and believed in the capacity of bitcoin, and cryptocurrency in general, to be a transformative financial technology.

According to a long Vanity Fair feature, Cotten always had a smile on his face.   It was a calm, unflappable grin. It put outsiders at ease and made him appear cheerful.

Unlike other CEOs, such as Binance’s Changpeng Zhao, Cotten avoided the spotlight and was not well-known. QuadrigaCX, on the other hand, was a frequent supporter of local crypto educational activities and charity, such as the Indian orphanage that he claimed was the cause for his December 2018 visit.

When QuadrigaCX’s business took off, it was still impossible for most individuals to invest in cryptocurrencies, and the company benefited from being one of the first to market. Cotten’s bitcoin enthusiasm and understanding were obvious, and some of the company’s success may be credited to his early attempts to appear to care more about helping others understand and grasp the potential of Bitcoin than making a profit.

However, things were not as straightforward as they looked. All of this was brought to light by Cotten’s death, which is currently being investigated.

It was revealed that the cold storage wallets that were intended to hold QuadrigaCX’s reserves only contained a small portion of the missing $190 million. In June 2019, accounting firm Ernst & Young released another shocking report. It described how Cotten moved millions of dollars in cryptocurrency from client accounts to other exchanges, which he subsequently used to support his extravagant lifestyle and personal trading activities.