On June 11, 2020 the Ontario Securities Commission (OSC), one of Canada’s provincial securities regulators, issued a report finding that QuadrigaCX (Quadriga), which went into bankruptcy a few months after founder and CEO Gerald Cotten was reported to have died in India, “was an old-fashioned fraud wrapped in modern technology.”[1] The report, dated April 2020, details that at the time Quadriga filed for bankruptcy protection, the cryptocurrency exchange owed 76,000 clients a combined $215 million in assets.[2] Although these clients spanned the globe, approximately 40% hailed from Ontario.[3]

OSC staff undertook a review of Quadriga’s operations to determine how the platform was run and what caused its collapse. Over a 10-month period, staff reviewed and analyzed trading and blockchain data, interviewed witnesses, and collaborated with various regulatory bodies in Canada and elsewhere to determine, among other things, where the money went.[4] They found that a $169 million asset shortfall resulted from Cotten’s fraudulent conduct.


Quadriga was launched in December 2013 by, among others, Cotten, a then-25-year-old who founded the platform to meet a need in Canada’s burgeoning crypto space.[5] In late 2013, just before Quadriga launched, bitcoin experienced its first bull run and reached values of well over $1,000. Quadriga capitalized on this opportunity to present itself as the platform for Canadians to access bitcoin and other crypto assets, allowing customers to fund their accounts solely with Canadian dollars or bitcoin.[6] Customers could then trade their assets for the assets of other Quadriga clients, making it easy for Canadian customers to invest in bitcoin. Quadriga was then able to charge fees, which ranged from 0.2% to 0.5% of the value of each trade and which were deducted from clients’ trade proceeds.[7] Often, clients were also charged fees for funding or withdrawing from their accounts.

The OSC’s Review

To determine how Cotten managed client assets, OSC staff analyzed data regarding more than 368,000 client accounts and over six million individual transactions, including deposits, withdrawals, and trades.[8] Staff also reviewed thousands of Quadriga-related emails and records from other crypto asset trading platforms. Moreover, as Quadriga did not maintain proper financial records and relied on third-party payment processors to process deposits and withdrawals to and from the platform, OSC staff gathered records from these and other entities to reconstruct Quadriga’s affairs.[9]

OSC’s witness interviews included individuals associated with Quadriga and Cotten, including former contractors and advisors, Cotten’s spouse, and several affected clients who personally reached out to OSC to share their stories.[10] Attempts were made to contact Michael Patryn, one of Quadriga’s co-founders, but he did not respond to any requests.

OSC’s Findings

OSC Staff concluded that Quadriga collapsed primarily due to fraud committed by Cotten. Specifically, the OSC report states that:

  • There was no segregation of assets.[11] From at least 2015, Quadriga did not maintain boundaries between its own assets and those of its clients. This enabled Cotten to use client funds to pay operating expenses including contractor fees. Client assets were also used by Cotten to cover the trading losses he generated on the platform, and to engage in speculative trading on other platforms. Clients were not told their money was being used to pay for platform operations or otherwise spent by Cotten for business and personal expenses.
  • Books and records were not properly maintained.[12] While the platform tracked some information including funding of client accounts, trades, withdrawals, and balances, from 2016 onward, no accounting ledger existed and there were no other records regarding the assets Quadriga controlled.
  • Cotten traded using fake aliases and fictitious money.[13] Cotten traded with Quadriga clients using numerous alias accounts, which he credited with fictitious assets through manual adjustments to Quadriga’s internal ledger. These adjustments were reflected in Quadriga’s records as an “administrative adjustment,” “in-person payment” or “bank wire.” For example, in 2017, Cotten credited one of his fake accounts with deposits totaling $150 million – fictitious funds that he used to trade with Quadriga clients.

The OSC report found that Cotten was, in essence, trading with an unlimited credit facility because Quadriga clients bore the risks, and eventually the impact, of Cotten’s trading losses.[14] Indeed, Cotten accumulated significant trading losses totaling over $115 million over the life of the platform. The OSC report stated there was no indication that Cotten brought any funds that were not client funds onto the platform to cover these losses. Instead, he used other clients’ platform assets to pay out clients with whom he traded. This consequently created a shortfall between the total amount owed to clients and the pool of underlying assets held by Quadriga. Ultimately, this meant that Cotten was operating Quadriga like a Ponzi scheme in that a portion of client withdrawals were being funded with other clients’ deposits.

OSC staff also determined that Cotten was siphoning assets from the platform to fund his lifestyle.[15] Between 2016 and 2018, he transferred approximately $24 million of client funds to himself and his spouse. Cotten also purchased several luxury vehicles, a yacht, a plane, and multiple properties.[16]

While OSC staff would have likely pursued an enforcement action against Cotten and Quadriga, it was not practical given that Cotten is deceased and Quadriga is in bankruptcy. Given the situation, OSC staff obtained approval from a panel at the OSC pursuant to Subsection 17(a) of the Ontario Securities Act to publish the report. While the panel approved publication of the report, the findings contained in the report have not been tested before a panel of the OSC or a court.


The OSC report indicated that the facts it uncovered about Quadriga apply only to Quadriga and should not be construed as indicative of similar misconduct on other crypto asset trading platforms. The report went further to state that “[p]roperly conducted, crypto asset trading is a legitimate and important component of our capital markets” and stressed that financial innovation is critical to the economy and the competitiveness of capital markets. According to the OSC, crypto asset trading platforms are an emerging area in which the regulatory regime is still evolving and carry with them numerous risks. In light of those risks, there are key regulatory takeaways from this report for investors and crypto asset trading platforms. Anyone considering entrusting their assets to one of these platforms should therefore conduct due diligence and be alert to signs of fraud by learning about the platform’s operations and approach to risk management.

The OSC report notes that crypto platforms should ensure that they have systems and controls in place to manage risks, including those related to personnel and regulatory compliance. These controls are key to maintaining the integrity of the business and fostering investor confidence. This includes disclosing key information to clients such as asset custody and storage practices, fees, reported volumes, platform security measures, internal controls, and conflicts of interest.

[1] OSC, QuadrigaCX: A Review by Staff of the Ontario Securities Commission (April 14, 2020), p. 4, available at https://www.osc.gov.on.ca/quadrigacxreport/web/files/QuadrigaCX-A-Review-by-Staff-of-the-Ontario-Securities-Commission.pdf.

[2] Id. at p. 3. All amounts are expressed in Canadian dollars per the OSC report.

[3] Id.

[4] Id.

[5] Id. at p. 9.

[6] Id.

[7] Id.

[8] Id. at p. 7.

[9] Id.

[10] Id.

[11] Id. at p. 14.

[12] Id. at p. 15.

[13] Id.

[14] Id.

[15] Id. at p. 21.

[16] Id.